The SEC recently released its latest quarterly "Private Funds Statistics report, which summarizes Form PF reporting and includes some data on "Liquidity Funds." The publication shows overall Liquidity fund assets were up in the latest reported quarter (Q3'19) to $588 billion (up from $580 billion in Q2'19). The SEC's "Introduction" tells us, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers. This report reflects data from Fourth Calendar Quarter 2017 through Third Calendar Quarter 2019 as reported by Form PF filers." We believe many of these liquidity funds are securities lending reinvestment pools and other short-term investment funds. (Note: As a reminder, we'll be hosting our first Webinar event, "Crane's Money Fund Update & Training," at 3:00pm Eastern today, Thurs., May 21. To register for our free update, go here: https://register.gotowebinar.com/register/5005519395474084109.)
The tables in the SEC's "Private Funds Statistics: Third Calendar Quarter 2019 the most recent data available, now show 114 Liquidity Funds (including "Section 3 Liquidity Funds," which are Liquidity Funds from advisers with over $1 billion total in cash), down 2 from the last quarter and up one from a year ago. (There are 72 Liquidity Funds and 42 Section 3 Liquidity Funds.) The SEC receives Form PF reports from 39 Liquidity Fund advisers and 21 Section 3 Liquidity Fund advisers, or 60 advisers in total, down one from last quarter (unchanged from a year ago).
The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $588 billion, up $8 billion from Q2'19 and down $29 billion from a year ago (Q3'18). Of this total, $297 billion is in normal Liquidity Funds while $291 billion is in Section 3 (large manager) Liquidity Funds. The SEC's table on "Aggregate Private Fund Gross Asset Value" shows total Liquidity Fund assets at $593 billion, up $9 billion from Q2'19 and down $30 billion from a year ago (Q3'18). Of this total, $300 billion is in normal Liquidity Funds while $293 billion is in Section 3 (large manager) Liquidity Funds.
A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $69 billion is held by Private Funds (23.7%), $64 billion is held by Unknown Non-U.S. Investors (22.0%), $75 billion is held by Other (25.8%), $19 billion is held by SEC-Registered Investment Companies (6.5%), $8 billion is held by Insurance Companies (2.7%) and $4 billion is held by Non-U.S. Individuals (1.4%).
The tables also show that 75.5% of Section 3 Liquidity Funds have a liquidation period of one day, $277 billion of these funds may suspend redemptions, and $245 billion of these funds may have gates (out of a total of $522 billion). The Portfolio Characteristics show that these funds are very close to money market funds. WAMs average a short 30 days (45 days when weighted by assets), WALs are 63 days (82 days when asset-weighted), and 7-Day Gross Yields average 1.9% (2.0% asset-weighted). Daily Liquid Assets average about 50% (43% asset-weighted) while Weekly Liquid Assets average about 61% (53% asset-weighted). Overall, these portfolios appear shorter with a much heavier Treasury exposure than money market funds in general; almost half of them (47.6%) are fully compliant with Rule 2a-7.
In other news, S&P Global Ratings published the brief, "Monitoring the Effect of Market Volatility On Local Government Investing Pool Ratings." The "Key Takeaways" section says, "We have not taken any rating actions on local government investment pools (LGIPs) as a result of the recent COVID-19-induced market volatility, because these pools' metrics have remained within our expectations for the current ratings. An important measure we consider is whether a pool has maintained a net asset value (NAV) price per share of $1.00, and so far the LGIPs have done so. During the flight to quality in March, LGIPs experienced fewer outflows relative to prime money market funds, largely because the investor base tends to be more stable. We expect managers of LGIPs to maintain their conservative approach; however, redemptions could rise if market conditions deteriorate."
The brief explains, "Local government investment pools (LGIPs) rated by S&P Global Ratings have managed to navigate through the recent COVID-19-related market volatility, which peaked during the week of March 16, 2020. All pools have remained within the S&P Global Ratings' key rating factors, and therefore we have not taken any actions so far on pools we rate under our principal stability fund ratings (PSFR) criteria."
It continues, "The March 2020 liquidity event in the money market industry was primarily the result of a flight to quality, during which the rush to government securities left little demand for high-quality corporate money market instruments, in particular commercial paper, thereby freezing short-term credit markets. This episode placed stress on prime institutional money market fund (MMF) NAVs, which experienced outflows totaling $116 billion, representing a 23% decline during this period. LGIPs we rate did not experience the same level of redemption activity in proportion to prime MMFs and, as a result, were generally able to avoid material deterioration to their NAVs, credit quality, average maturity, issuer diversification, or liquidity objectives. According to our asset flow data during the first quarter, particularly for the month of March, LGIPs we rate under our PSFR criteria experienced $3.7 billion in outflows, making up 1.75% of rated pool assets."
S&P also comments, "Interestingly, when observing this flow data over a longer time horizon, March 2020 flows are largely consistent with historical cyclicality for our rated LGIPs. Based on 36 months of historical asset-flow data, LGIPs typically gain assets in November and December and subsequently experience outflows in February and March, which is mainly caused by seasonal tax revenue. Given March 2020 outflows were in line with historical patterns, we believe that the asset-flow activity was generally isolated from the recent market volatility."
They add, "Because of the uncertainty of renewed volatility in the short-term markets, we remain vigilant in our monitoring of LGIPs. Although pools we rate did not experience a deterioration of key rating factors during the recent market stress, we recognize that local governments may focus their efforts on funding and facilitating ongoing measures to mitigate COVID-19-related downturns. Redemptions from LGIPs could increase if market conditions do not improve. Based on our discussions with investment managers of LGIPs, we expect pools to maintain their investment profiles by focusing on high-credit-quality and liquid investments. In the weeks and months ahead, we expect a continuation of the conservative approach, with the possibility of further restrictions on less-liquid securities."
LGIPs rated AAAm by S&P include: Alaska Municipal League Investment Pool, California Asset Management Trust/Cash Reserve Portfolio, CalTRUST Liquidity Fund, Orange County Educational Money Market Fund, Orange County Money Market Fund, Colorado Local Government Liquid Asset Trust (COLOTRUST PLUS+), Colorado Local Govt Liquid Asset Trust (COLOTRUST PRIME), Colorado Statewide Investment Pool - CSIP Liquid Portfolio, Colorado Surplus Asset Fund Trust (CSAFE), Connecticut State Treasurer's Short-Term Investment Fund, FL SAFE Stable NAV Fund, Florida Cooperative Liquid Assets Securities, Florida PRIME, Florida Public Assets for Liquidity Management - FL PALM Portfolio, Florida Short Term Asset Reserve Govt Fund, Florida Short Term Asset Reserve Prime Fund, Iowa Public Agency Investment Trust - Diversified Portfolio, Iowa Schools Joint Investment Trust, Illinois Funds - MMF (The), Illinois Public Reserves Investment Management Trust (IPRIME), Illinois School District Liquid Asset Fund Plus - Liquid Class, Illinois School District Liquid Asset Fund Plus - Max Class, Illinois Trust - Illinois Portfolio, Louisiana Asset Management Pool, Massachusetts Development Finance Agency Short Term Asset Reserve Fund, Maryland Local Govt Investment Pool, Michigan Cooperative Liquid Assets Securities System, Michigan Liquid Asset Fund Plus, Minnesota School District Liquid Asset Fund, MNTrust - Investment Shares, Missouri Securities Investment Program -Liquid Series, North Carolina Capital Management Trust - Govt Portfolio, Nebraska Liquid Asset Fund, New Hampshire Public Deposit Investment Pool, New Jersey Asset & Rebate Management Program/Joint Account, New Mexico Local Govt Investment Pool, New York Cooperative Liquid Assets Securities System, New York Liquid Asset Fund - MAX Portfolio, State Treasury Asset Reserve of Ohio (STAR OHIO), Pennsylvania INVEST Community Pool, Pennsylvania INVEST Daily, Pennsylvania Local Govt Investment Trust/PLGIT Portfolio, Pennsylvania Local Govt Investment Trust/PLGIT/ARM Portfolio, Pennsylvania Local Govt Investment Trust/PLGIT/PRIME, Pennsylvania School District Liquid Asset Fund - Govt Transparency Series, Pennsylvania School District Liquid Asset Fund - Max Series, Local Govt Investment Cooperative, Lone Star Investment Pool - Corporate Overnight Fund, Lone Star Investment Pool - Govt Overnight Fund, Texas Class Government, Texas Cooperative Liquid Assets Securities System, Texas Short Term Asset Reserve (TexSTAR) Cash Reserve Fund, TexasTERM Local Govt Investment Pool/TexasDAILY Portfolio, TEXPOOL, TEXPOOL Prime, VACo/VML Virginia Investment Pool (VIP) Stable NAV Liquidity Pool, Virginia Local Govt Investment Pool, Virginia State Non-Arbitrage Program – SNAP Fund, Wisconsin Investment Series Cooperative - Cash Management Series and Investment Series, West Virginia Govt Money Market Pool, West Virginia MM Pool and Wyoming Govt Investment Fund Liquid Asset Series.
