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On December 7, the Governmental Accounting Standards Board will vote on a proposal to allow Local Government Investment Pools, or LGIPs, to continue using amortized cost accounting and stable NAVs -- in effect, "​de-​coupling" LGIPs from the SEC'​s pending money market fund reforms. The move is in direct response to pending money market fund reforms; many LGIPs have investment guidelines that don'​t allow them to have floating NAV investments or fees and gates. GASB, which, "​establishes accounting and financial reporting standards for U.​S. state and local governments," issued an Exposure Draft of the proposed guidelines for LGIPs on June 22, entitled, "Accounting and Financial Reporting for Certain External Investment Pools." After a two month comment period that ended August 31, slight tweaks were made, and GASB is slated to vote on the revised proposal next Monday. If approved, it will be go into effect once the final rule is posted on the GASB web site in December.

GASB posted recent commentary explaining the proposed change. It says, "In December, the GASB is scheduled to issue final guidance on ... certain investment pools operated by governments (​also known as external investment pools). This proposal is intended to address rule changes recently adopted by the Securities and Exchange Commission (​SEC) that will impact the related financial reporting requirements based on a reference to those rules in current GASB literature. Some local government investment pools function much like money market funds. Typically, those government investment funds pool the resources of participating governments and invest in various securities as permitted under state law. By pooling their cash together, participating governments benefit in a variety of ways, including economies of scale, professional management, and enhanced liquidity."

It continues, "Under the SEC'​s new rules that have been incorporated by reference in current GASB standards, which take effect in 2016, many of these pools and their participants are not expected to qualify for reporting investments on an amortized cost basis, which is currently allowed under the SEC'​s "​2a7-​like" pool provisions in the standards. After deliberating comments received on the June 2015 Exposure Draft, the GASB is completing final guidance that will establish criteria for pools and pool participants to qualify for reporting investments at amortized cost."

GASB'​s June press release, entitled, "GASB Issues Proposed Guidance on External Investment Pools and Component Units," explained, "Existing standards provide that external investment pools may measure their investments at amortized cost for financial reporting purposes if they follow substantially all of the provisions of the U.​S. Securities and Exchange Commission'​s Rule 2a7 for money market funds. Likewise, participants in those pools are able to report their position in the pool at amortized cost per share. The proposal would replace the reference in GASB literature to Rule 2a7 with the GASB'​s own set of criteria. This is being done in response to major changes to Rule 2a7 that take effect in 2016. Under the rule changes, many government pools would expect to no longer qualify for amortized cost reporting. This would represent a significant change from current practice for both the pools and their participants."

GASB Chairman David Vaudt commented, "The Exposure Draft on external investment pools should help avoid confusion ahead of forthcoming regulatory rule changes. The Exposure Draft on blending requirements will clarify reporting entity presentation of certain component units incorporated as not-​for-​profit corporations."

LGIPs, which manage approximately $​300 billion, are not required to register with the SEC, but they have mostly conformed to the requirements of the Rule 2a-​7 money market mutual fund regulations. Following the SEC'​s reform announcement in July 2014, GASB received a flood of requests to study the impact of the reforms on the accounting and financial reporting of the pools. They surveyed pool participants, pool sponsors, money managers, and consultants, and came up with their Exposure Draft. As mentioned, the major change in in the proposal is that LGIPs are not required to have floating NAVs or fees and gates. Otherwise, the separate, standalone criteria for LGIPs will basically follow the rules as outlined in the 2010 amendments to 2a-​7.

GASB received mostly positive feedback on its proposal in the 22 comment letters it received. One of the letters, from Federated Investors' Amy Michaliszyn, says, "We strongly support the proposal of GASB to de-​link GASB standards from the Securities and Exchange Commission'​s ("​SEC'​s") Rule 2a-​7, which was recently amended to restrict the use of amortized cost accounting for certain money market mutual funds Although we suggest improvements to the proposal, we do not intend these suggestions to detract from our overall support of the proposal, and urge GASB to adopt the proposal with minor modifications."

Michaliszyn continues, "The central element of the proposal is to modify the prior GASB guidelines pertaining to the use of amortized cost accounting in financial statements of LGIPs; the prior guidance incorporated by reference SEC Rule 2a-​7. The current proposal would instead set forth specific criteria for use of amortized cost by LGIPs. Federated strongly supports this decision by GASB to de-​link external pool accounting from Rule 2a-​7.... [​W]​e suggest that the basic premise for the use of amortized cost for debt instruments -- that the owner intends to hold them to maturity and has the capability to do so -- not be forgotten. If they are not sold and do not default, any deviation between book value and market value is never realized."

The Federated letter adds, "The categories of portfolio criteria included in paragraph 4 of the proposal -- portfolio diversification, liquidity, weighted average maturity (​WAM), weighted average life (​WAL), maximum maturity of individual instruments, dollar denomination and credit quality of instruments, and reporting of a "​shadow price" -- broadly speaking, are consistent with that approach. Inclusion of the objective that the LGIP seeks to maintain a stable net asset value ("​NA V") per unit is also appropriate as a criterion."

Debra Goodnight from PFM Asset Management also comments, “For many of our investment management clients, their legislative and entity-​specific investment policy requirements include reference to investing in "​Rule 2a-​7" SEC registered money market funds and can also include the necessity for the investments of operating or bond proceeds accounts to maintain a "$​1.​00 NAV". We appreciate GASB'​s quick and proactive response to the impact of "​2a-​7like" related standards in light of the 2014 SEC amendments to Rule 2a-​7."

She adds, "Now is the time that many government finance officers are considering shifting investments out of money market funds before the implementation of the SEC 2a-​7 changes in October 2016 to variable net asset values, or a floating NAV, for registered prime funds.... In this environment, it is becoming increasingly challenging for governmental entities to find suitable options for meeting their short term investment needs without increasing investment risks. Our belief is that GASB previously chose to reference the requirements of Rule 2a-​7 as a way to adopt a set of standards that would be consistent with guidance for nonpublic institutions. The SEC requirements were meant to address a broad spectrum of investors that have far less certainty of cash flows, differing risk tolerances, and a wider variety of investment options. The 2014 amendments to Rule 2a-​7 widens the divide between controls perceived as necessary to safeguard the national financial infrastructure versus those needed for public entities."

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Following a surge in October, money fund assets have continued higher in November, increasing for the 8th week out of the last 10 and hitting their highest levels of 2015. The Investment Company Institute'​s weekly statistics show that assets are up about $​7 billion through November 24, and year-​to-​date assets are down just $​9 billion, or 0.​3% (​assets are higher this week than every week of the year but lower than their starting level on 12/​30/​14). ICI'​s latest monthly asset flow numbers also verify October'​s money fund asset jump, the largest increase of the year. We review ICI'​s latest "Trends in Mutual Fund Investing," and ICI'​s latest weekly "Money Market Fund Assets" report below. We also examine ICI'​s "Month-​End Portfolio Holdings of Taxable Money Funds," which confirms that holdings of Repurchase Agreements plummeted (​to $​582.​0 billion) in October (​after hitting an all-​time high in Sept.) and Government Agency holdings continued climbing, reached their highest level ($​435.​9 billion) since June 2010. (​See Crane Data'​s November 12 News, "Nov. Portfolio Holdings: Time Deps, Agencies Jump; Repos Plummet."

The most recent weekly asset update says, "Total money market fund assets increased by $​11.​83 billion to $​2.​72 trillion for the six-​day period ended Tuesday, November 24, the Investment Company Institute reported today. Among taxable money market funds, government funds (​including agency and repo) increased by $​5.​90 billion and prime funds increased by $​6.​05 billion. Tax-​exempt money market funds decreased by $​120 million."

ICI explains, "Assets of retail money market funds decreased by $​450 million to $​893.​45 billion. Among retail funds, government money market fund assets decreased by $​900 million to $​217.​79 billion, prime money market fund assets increased by $​700 million to $​497.​02 billion, and tax-​exempt fund assets decreased by $​250 million to $​178.​64 billion. Assets of institutional money market funds increased by $​12.​27 billion to $​1.​83 trillion. Among institutional funds, government money market fund assets increased by $​6.​79 billion to $​853.​98 billion, prime money market fund assets increased by $​5.​35 billion to $​908.​43 billion, and tax-​exempt fund assets increased by $​130 million to $​67.​76 billion."

A Note adds, "In anticipation of the Securities and Exchange Commission'​s (​SEC) new money market fund regulations, many advisers are changing their prime money market funds into government money market funds. As a result, there have been, and will continue to be, large shifts in assets from prime funds to government funds before the October 2016 deadline. For more information about the SEC'​s new money market fund rules, read our recent ICI Viewpoints."

ICI'​s latest monthly "Trends" confirms a big jump in MMFs in October, as assets increased by $​45.​2 billion, or 0.​2%, to $​2.​714 trillion. Assets have increased in five of the last 6 months -- assets were down $​5.​1 billion in September, but up $​8.​1 billion in August, $​45.​9 billion in July, $​12.​9 billion in June, and $​38.​0 billion in May. In the 12 months through Oct. 31, 2015, money fund assets are up $​90.​1 billion, according to ICI. It says, "​The combined assets of the nation'​s mutual funds increased by $​692.​98 billion, or 4.​5 percent, to $​15.​97 trillion in October, according to the Investment Company Institute'​s official survey of the mutual fund industry."

Trends continues, "​Bond funds had an inflow of $​4.​37 billion in October, compared with an outflow of $​20.​01 billion in September.... Money market funds had an inflow of $​43.​92 billion in October, compared with an outflow of $​6.​06 billion in September. In October funds offered primarily to institutions had an inflow of $​51.​61 billion and funds offered primarily to individuals had an outflow of $​7.​69 billion." Money funds now represent 17.​0% of all mutual fund assets, while bond funds represent 21.​8%.

The fund industry trade association'​s latest "Portfolio Holdings" summary shows that Repos plummeted following quarter-​end while CDs rebounded and retook the No. 1 spot. Repurchase agreement holdings decreased $​11049 billion, or 15.​9%, in October to $​582.​0 billion. Repo dropped down to the 2nd largest portfolio segment, representing 23.​6% of taxable MMF holdings. As they normally do following quarter-​end, CDs (​including Eurodollar CDs) jumped, increasing $​104.​5B, or 21.​1%, in October to $​599.​0 billion. (​ICI'​s CD totals likely include Time Deposits, which Crane Data, and the SEC, categorize as "​Other" -- we reported a sizable increase in Other/​TDs in October.) CDs make up 24.​3% of holdings.

U.​S. Government Agency Securities continued surging higher, increasing $​36.​5 billion, or 9.​1%, to $​399.​3 billion (​17.​7% of assets). This jump is due to the migration of money fund assets from Prime to Government, including the $​115 billion Fidelity Cash Reserves, which is set to complete its conversion by December 1. Treasury Bills & Securities remained in fourth place among composition segments, increasing $​13.​1 billion, or 3.​3%, in October to $​404.​5 billion (​16.​4% of assets). Commercial Paper was still fifth, declining $​0.​9B, or 0.​3%, to $​337.​1 billion (​13.​7% of assets). Notes (​including Corporate and Bank) inched lower by $​169 million, or 0.​2%, to $​77.​2 billion (​3.​1% of assets), and Other holdings (​including Cash Reserves) stood at $​33.​0 billion, up $​1.​7 billion.

The Number of Accounts Outstanding in ICI'​s series for taxable money funds increased by 108.​5 thousand to 23.​231 million, while the Number of Funds remained flat at 350. Over the past 12 months, the number of accounts fell by 376.​7 thousand and the number of funds declined by 16. The Average Maturity of Portfolios rose to 38 days in October, up 3 days from Sept. Over the past 12 months, WAMs of Taxable money funds have declined by 9 days. The previous month, WAM'​s were at the lowest level since June 2010, according to our analysis of ICI'​s data.

Note: Crane Data updated its November MFI XLS to reflect the 10/​31/​15 composition data and maturity breakouts for our entire fund universe last week. Note too that we are now producing a "Holdings Reports Issuer Module," which allows subscribers to choose a series of Portfolio Holdings and Issuers and to see a full listing of which money funds own what paper. (​Visit our Content Center and the latest Money Fund Portfolio Holdings download page to access our October Money Fund Portfolio Holdings and the latest version of this new file.)

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OppenheimerFunds, the 25th largest money fund manager, issued a statement on Friday stating that all of their Prime funds will be convert to Government funds later in 2016. Currently, Oppenheimer has $​10.​1 billion in money fund assets, all of which are currently in Prime funds. The move brings the assets converted recently or planning to convert from Prime to Government to almost $​250 billion to date. Also, another firm that announced a major shift out of Prime into Government earlier this year, Deutsche Wealth and Asset Management, also announced the launch of two ultra-​short term bond funds on Monday.

Oppenheimer'​s "Money Market Reform Announcement," explains, "To act in the best interest of our clients while also ensuring compliance with the upcoming money market reform rules that will be effective in October 2016, Oppenheimer Funds' money market offerings will transition to government money market funds. Government money market funds are required to hold at least 99.​5% of its assets in cash, government securities, and repurchase agreements that are collateralized fully; are permitted to maintain a stable net asset value; and are not required to impose liquidity fees or redemption gates."

This latest announcement says that the $​1.​8 billion Oppenheimer Money Market Fund will become Oppenheimer Government Money Market Fund; the $​850 million Oppenheimer Cash Reserves will become Oppenheimer Government Cash Reserves; and the $​7.​5 billion Oppenheimer Institutional Money Market Fund will become Oppenheimer Institutional Government Money Market Fund on Sept. 28, 2016. Also, they say that Oppenheimer Money Fund/​VA will become Oppenheimer Government Money Fund/​VA on April 29. 2016.

The release adds, "Following extensive consultation with our clients, the Board agreed that this decision is in the best interests of shareholders. Adapting the Funds to the new policy will not require shareholders to vote; however, they will be notified of these changes through prospectus supplements this month."

Among the major Prime to Government conversions to date: Franklin converted over $​25 billion and Dreyfus converted $​2.​2 billion (​Inst Reserves) on Nov. 1; Fidelity converted its $​16.​1 billion CMF Prime Fund on Nov. 13; and the $​115 billion Fidelity Cash Reserves, the $​12 billion Fidelity MMT: Retirement Port II, and $​1.​4 billion American Century Premium MMF will convert on Dec. 1. In 2016, BlackRock will convert over $​18 billion in BIF, BBIF, FFI, Ready Assets and Retirement Reserves funds on Jan. 4, the $​15.​8 billion American Funds MMF will convert on April 1, and Deutsche will convert $​18.​1 billion in MMFs on May 2. (​No date has been announced for the $​6.​5 billion T. Rowe Price Prime Reserves yet.)

Deutsche Asset & Wealth Management also made news, issuing a press release announcing the launch of two new ultra-​short term bond funds. (​We first reported this in the October issue of our Bond Fund Intelligence newsletter.) In July, Deutsche announced that it was converting 5 Prime portfolios with a total of about $​18 billion in assets into Government funds, including Cash Management Fund; Cash Reserves Fund Institutional; Deutsche Money Market Series; Deutsche Money Market VIP; and Prime Series of Cash Reserve Fund, Inc. It will keep just one Prime Institutional Fund, the $​113 million Deutsche Variable NAV Money Market Fund. These new ultra-​short funds, which occupy the space just outside of 2a-​7 money market funds, will complement the company'​s money market fund offerings.

Their release explains, "Deutsche Asset & Wealth Management today announced the offering of two fixed income funds, Deutsche Limited Maturity Quality Income Fund (​Institutional Class: DLTIX, Investment Class: DLTVX) and the Deutsche Ultra-​Short Investment Grade Fund (​Institutional Class: DUSNX, Investment Class: DUSVX). Each Fund seeks to provide investors with current income consistent with the preservation of capital and liquidity. The Funds, while not money market funds, are meant to serve our corporate clients and financial intermediaries' evolving needs in light of the SEC'​s Money Market Reform, which goes into effect October 2016."

Joe Benevento, Chief Investment Officer for the Americas and Co-​Head of Global Fixed Income for Deutsche AWM, "Deutsche AWM is committed to creating investment solutions across the spectrum of conservative fixed income products amid the evolving regulatory landscape.... We will continue to assess the market and deliver innovative products in an ongoing effort to identify the changing needs of our clients."

The press release continues, "Deutsche Limited Maturity Quality Income Fund seeks to achieve its objective by investing mainly in high quality, short-​term, US dollar denominated fixed-​income instruments. Deutsche Ultra-​Short Investment Grade Fund seeks to achieve its objective by investing in investment grade US dollar denominated fixed-​income instruments. Both Funds offer two share classes, Institutional Shares and Investment Class, and Geoffrey Gibbs, Head of the US Liquidity Management Group, serves as the Lead Portfolio Manager of the team managing each Fund."

In other news, Fidelity Investments released a new commentary, "Door Open for December Interest Rate Increase" by Michael Morin and Kerry Pope. It says, "​In October, the House of Representatives and Senate passed a budget agreement that raised the debt ceiling and paved the way for a spending bill to keep the government funded.... Significant for the money markets sector, lifting the debt ceiling will enable the Treasury to meaningfully increase its T-​bill issuance to rebuild its cash on hand to about $​250 billion, from an estimated $​30 billion. The additional supply should pressure bill yields and repurchase agreement rates higher. While the two-​day FOMC meeting concluded on October 28 with no rate change, there were two interesting, albeit subtle, alterations in the Fed'​s accompanying statement."

Finally, they add, "All in all, investors interpreted the statement as more hawkish than they had anticipated. At the end of October, fed funds futures pointed to a 50% probability of a rate hike -- assuming an average fed funds rate of 0.​375% after the first hike. At October'​s FOMC meeting, 13 of the 17 officials still expected a rate hike this year, provided the economy grows as forecast. The Committee will determine whether it will be appropriate to raise rates at its December 15–​16 meeting, based on its assessment of progress toward achieving its objectives of maximum employment and 2% inflation."

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UBS Global Asset Management filed with the SEC to launch three new money funds, we learned this week from Strategic Insight'​s SimFund Filing service. SI writes in its weekly synopsis, "UBS registers three money market funds which will each invest through the same underlying master fund and that intend to qualify as "​retail money market funds" on or before October 14, 2016: the UBS Prime Investor, UBS Prime Preferred and UBS Prime Reserves funds (​with minimum investments of $​10,​000, $​50,​000,​000, and $​1,​000,​000, respectively)." New Prime money fund launches aren'​t exactly typical in the current environment, where we have seen a series of liquidations, mergers, and nearly $​240 billion worth of Prime funds declare their intent to convert to Government funds. Among the few firms recently announcing plans to launch Prime Retail funds, Western Asset Management recently filed to launch Western Prime Obligations MMF. (​See our Oct. 14 Link of the Day, "Western Files for Prime Retail."

UBS filed Registration Statements ("​Form N-​1A," or 485APOS) for three new Prime Retail funds -- UBS Prime Investor, UBS Prime Preferred, and UBS Prime Reserves -- on October 16. According to the SEC filing, the investment objective of the Prime Investor Fund is, "​Maximum current income consistent with liquidity and the preservation of capital." The principal strategy is, "The fund is a money market fund and seeks to maintain a stable price of $​1.​00 per share. The fund seeks to achieve its objective by investing in a diversified portfolio of high quality money market instruments of governmental and private issuers. These may include: short-​term obligations of the US government and its agencies and instrumentalities; repurchase agreements; obligations of issuers in the financial services group of industries; and commercial paper, other corporate obligations and asset-​backed securities.... The fund invests in securities through an underlying master fund. The fund and its corresponding master fund have the same objective. Unless otherwise indicated, references to the fund include the master fund."

It continues, "On or before October 14, 2016, the fund intends to be a "​retail money market fund," as such term is defined in or interpreted under Rule 2a-​7 under the Investment Company Act of 1940, as amended (​the "​Investment Company Act"). "​Retail money market funds" are money market funds that have policies and procedures reasonably designed to limit all beneficial owners of the fund to natural persons. As a "retail money market fund," the fund will be permitted to continue to value its securities using the amortized cost method as permitted by Rule 2a-​7 under the Investment Company Act.... The minimum investment level for initial purchases generally is $​10,​000."

The filings for the other two new UBS funds, Prime Preferred and Prime Reserves are similar except for the investment minimums. The minimum is $​50 million for Prime Preferred and $​1 million for Prime Reserves. In June, UBS announced its roster of Government funds under the new SEC rules. (​See our June 12 News, "UBS Announces Govt MF Plans, Private MMFs.") At the time, UBS said it plans to have a full roster of money funds once the new rules take effect, including CNAV Prime, Muni and Government funds; Floating NAV Institutional Funds, Private Fund(​s), Separately Managed Accounts, and Ultrashort Bond Fund(​s).

UBS also filed to make changes to its Bank Sweep Programs in the prospectus for its Select Prime Capital, Select Treasury Capital, and Select Tax-​Free Capital money market funds. This June filing says, "Effective August 20, 2015, if you are an eligible participant, in the event that the bank offering the interest-​bearing deposit accounts into which your free cash balances are swept elects to stop taking deposits at its discretion or if it is prohibited from doing so by its banking regulators, your free cash balances will be swept to a temporary sweep option. Existing balances will remain in such interest-​bearing deposit accounts and in your "secondary sweep option", which is either a fund or deposit accounts at UBS AG.... If your secondary sweep option is UBS RMA U.​S. Government Portfolio, your temporary sweep option will not change. You will not receive prior notice before your free cash balances begin sweeping to your temporary sweep option. However, notices will be posted to UBS Financial Services Inc.'​s public and private websites no later than the Implementation Date, and your securities account statements will reflect the change."

In other news, Fidelity completed the merger of its $​1.​9 billion U.​S. Government MMF into its Government Money Market Fund Friday, and is preparing to convert its massive Cash Reserves into a Govt fund and convert the $​11.​6 billion Fidelity Money Market Trust: Retirement Money Market portfolio into FMMT: Retirement Government Money Market II Portfolio. The latter fund'​s conversion is slated to be completed on or about Nov. 30, 2015, according to Fidelity'​s SEC filing. It says, "​At a special shareholder meeting of Retirement Money Market Portfolio, shareholders approved a proposal to modify the fund'​s fundamental concentration policy so that the fund would be prohibited from investing more than 25% of its total assets in the financial services industry. This change will enable the fund to operate as a government money market fund. The fund will implement other changes necessary to operate as a government money market fund, including (​i) adopting a principal investment strategy to normally invest at least 99.​5% of its total assets in cash, government securities, and/​or repurchase agreements that are collateralized fully and (​ii) changing its name to "Retirement Government Money Market II Portfolio."

Fidelity is in the process of converting 4 Prime Retail funds to Government funds. (​See our Feb. 2 News, "Fidelity Announces Major Changes to MMFs; Staying Stable, Going Govt.") On Nov. 13, the $​15.​7 billion Fidelity Cash Management Prime Fund merged into Fidelity Government Money Market Fund. (​See our Nov. 13 News, "ICI on Prime to Govt Reclassifications; Ignites Recaps Shifts To-​Date.") As noted above, the $​115 billion Fidelity Cash Reserves Fund will be converted into Fidelity Government Cash Reserves Fund on Dec. 1. Also, Fidelity VIP Money Market Portfolio will convert to VIP Government Money Market Portfolio on Dec. 1.

In other news, the International Capital Markets Association'​s European Repo Council issued a report last week called, "Perspectives From the Eye of the Storm: The Current State and Future Evolution of the European Repo Market." It says post-​crisis regulation is "driving radical change in the European repo market." The accompanying press release explains, "The study records growing concern that the cumulative impact of various prudential and market regulations, along with extraordinary monetary policy, could be affecting the ability of the European repo market to function efficiently and effectively. This could, in turn, have wider repercussions for the broader capital markets and so for the real economy."

It continues, "There are still many unknowns arising from both regulation and monetary policy making predicting the future evolution of the European market difficult. The consensus views are: an expected reduction in the size of the market; an increase in the diversity of participants; a general widening of bid-​ask spreads; and the ongoing merging of banks funding and collateral management functions. The overriding concern among market participants is that in future, although they expect the repo market to continue in some form, it may be unable to function as effectively and efficiently as it has in the past in providing liquidity and collateral fluidity to the financial system, with potential negative consequences both for markets and the broader global economy."

Godfried De Vidts, Chair of the ICMA European Repo Council, comments, "The ERC has highlighted the value of the repo market for decades and was swift to recognise the need for regulatory reform in the aftermath of the financial crisis, but this latest study clearly shows that uncoordinated measures by legislators, regulators and prudential authorities are radically altering the short term secured financing market and may even compromise the success of regulatory measures such as EMIR which depend on the fluidity and availability of collateral. We hope that this new study will raise understanding among regulators of the true state of repo in Europe and of its essential role as a component of the Commission'​s plan for Capital Markets Union with its implications for jobs and growth."

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Below, we reprint from the November issue of our Bond Fund Intelligence newsletter, which features an interview with Invesco Managing Director & Head of Government, Short Duration, and EMEA Portfolio Management Laurie Brignac; and Senior Client Portfolio Manager Robert Corner . Brignac and Marques Mercier manage the Invesco Conservative Income Fund, which launched in July 2014. As Brignac tells us, "In looking at that larger ultra-​short category and listening to our clients, we wanted to create a product and strategy that provides them with additional yield and at the same time has enough of a footprint in the money market space." (​To request the full latest issue of BFI, e-​mail us at info@​cranedata.​com.)

BFI: How long have you been in the "​conservative" ultra-​short bond space? Brignac: I'​ve spent most of my 26-​year career in the money markets and front end of the curve. I did spend some time in the bond fund space and ran what was then called the Intermediate Government Fund, which is now Invesco US Government Fund. But the majority of time has been spent managing ultrashort and money funds over the years. Corner: I'​ve been with Invesco for two years now, but I cut my teeth in the global liquidity space in a prior position, managing short-​term bond funds, ultrashort bond funds, and separately managed accounts in liquidity, low duration, and other fixed income mandates.

BFI: What was the genesis of the Conservative Income Fund? Brignac: Conservative Income was launched in July of last year. The idea behind the launch was that there was definitely an opportunity in the product lineup -- given our extremely strong money market reputation.... Clients are becoming more educated in terms of how they are managing their cash. They'​re not just looking at money market funds -- they'​re starting to tier and bucket their cash -- looking at immediate needs and longer term needs for cash. In light of what'​s coming down the pike with money fund reform, clients are looking for other options. Their view seems to be, '​If my NAV is going to float, why don'​t I try to get a better return?' We do think that the Conservative Income Fund fills a gap in that space.... We feel that this product and strategy really does sit between short term bond funds and money market funds. Going forward, if more clients want something that’​s even shorter and more conservative than this fund, it'​s something that we can definitely manage. We have separate account strategies ... managed that way.

BFI: What is the strategy of the fund? Brignac: The Ultra-​Short category is comprised of many different types of funds. What we wanted to do is just take a step outside of money markets. When we were structuring this strategy, we wanted principal preservation, a higher income return, and then liquidity -- that'​s our investment objective. In order to maintain a more stable NAV, part of our strategy is to hold at least 50% of the assets in money market eligible securities, or securities less than one year, as they act as an anchor on the fund'​s NAV.

BFI: How has it been received? Brignac: You have to start garnering a track record in order to get the assets and that is the phase we are in now. But we do have a lot of clients that are looking at the strategy and we spend time educating investors about the strategy and what it means for them, whether it'​s in a separate account or a commingled product like the Conservative Income Fund.

BFI: What do you see as the biggest challenges for the strategy? Brignac: For this particular strategy it goes back to educating clients. This is meant to be a complimentary liquidity product -- it is not meant to be your only cash vehicle or even your primary cash vehicle. It'​s going to have a duration of less than a year and most times it will be much shorter than that. You have to understand what you are buying. If a client wants absolute stability of principle then they should be in a money market fund. But when clients are looking for an option for their longer term cash, then these types of funds are an important component in a broader liquidity strategy. At a time when hopefully the Fed is raising interest rates, given the short nature of the portfolio and how we have it structured, we think that even with an increase in interest rates it should perform relatively well in the ultra-​short space.

BFI: What are the portfolio guidelines? Brignac: The portfolio looks to achieve its investment objective by investing in short duration, investment grade money market and fixed income securities. The fund will maintain an average portfolio quality of '​single-​A' or better with a portfolio duration of less than a year. More recently, we'​ve been more conservative in our interest rate risk allocation and are maintaining a duration under half a year. As I mentioned earlier, the portfolio will hold at least 50% of its assets in securities which mature in less than one year. As of right now, with the Fed in play, that percentage of money market securities is a little higher -- we'​re actually over 65%. The portfolio can purchase asset-​backed securities and we currently hold approximately 20% in that asset class. Asset backed securities provide additional yield to the portfolio and, at the same time, it'​s an asset class that provides stability in terms of valuations, even in a rising interest rate environment.

And as you would expect, we will hold at least 25% in financials. If you look at the issuance in the front end of the curve, 80% of it is financials, so we are going to have a concentration there. But outside of that everything else will have the standard industry limits. Also, we'​re taking advantage of short A-​2, P-​2, or second tier commercial paper. We'​re combining that with nontraditional repo and it is providing a higher yielding anchor on the front end of the curve.... That’​s really where you'​re going to get most of your pricing variations -- in the longer dated securities. So it'​s kind of a modified barbell if you will. But it'​s all investment grade. With our history and credit leadership, and given the fact that a lot of the clients we'​re talking to are money market clients, we don'​t want to veer too much away from how they know us.

BFI: Can you tell us about yields & fees? Corner: The gross yield is in the low 80s [​bps]. There are a couple of things that we'​re seeing lately. We saw spreads gap out a little bit through the end of September, but we'​ve seen some improvement in October. That has benefitted the portfolio, and yields have come down a little bit. The net fee of the fund is 28 basis points. The stated fee is 65 bps; we'​re voluntarily waiving 37 bps. But that is just the nature of the product and not because of the environment that we'​re in right now.

BFI: Are regulations impacting the space? Brignac: It'​s sort of a '​Catch-​22.' Obviously, we know with [​the FSB'​s] TLAC ["​total loss absorption capacity" mandate] there'​s a lot of issuance that'​s going to be coming that will need to be absorbed in the market. But we find that a lot of traditional issuers are also cash rich. In talking to treasurers, we know they'​ve got money they need to put to work. Because banks don'​t want to hold a lot of client cash on their balance sheets, they are encouraging them to look to other products. There'​s only so much money you can put in your money market fund, so they have to either find a strategy like Conservative Income in the Ultra-​Short space, or they have to do it themselves with individual securities. Corner: What'​s nice about the Ultra-​Short space is it'​s almost a natural home for LCR-​friendly investments that banks are trying to create ... beyond the money market realm. So as the Ultra-​Short space grows, it'​s probably a friendly space for bank issuers.

BFI: What is your outlook for rates? Brignac: We are expecting the Fed to raise rates and obviously, December is in now in play following October'​s employment report. Initially, after the September meeting, we thought a rate hike would be on hold for the rest of the year, but they'​ve definitely put December back on the table.... But we do see them raising rates, if not at the December meeting, definitely in the first quarter of next year. For Conservative Income, we have been shortening and increasing the amount of money markets securities ... to hedge against higher rates. But at the same time there are areas where we can continue to extend -- selectively and strategically. I think the portfolio is very well positioned for an increase in rates.

Corner: For us, it is not necessarily a matter of when the Fed starts to raise rates, it'​s monitoring the expected pace and the terminal rate of the Fed funds. We expect the path is going to be slower than in the past Fed regimes -- at least the number of tightenings and the amount that they tighten could be less than in the past. The slower pace actually bodes well for fixed income investments and will minimize potential pain in the market in general. The duration in this fund is right at about 0.​33 of a year. We'​ve been running it very conservatively from a rate risk perspective.

BFI: What is the future for Ultra-​Shorts? Brignac: It'​s going to become a more important asset class as we move forward because so many investors are holding quite a bit of cash and they need to find other options. But they need to understand the Ultra-​Short space, and understand the differences between a low volatility Ultra-​Short fund and a high volatility Ultra-​Short fund. It'​s critical that clients recognize the different risks in funds within this broad category. Corner: We think it'​s important that investors, especially in the Institutional space, see the value in bucketing their cash. We also call it '​liquidity layering,' or bucketing your cash by liquidity needs and layering it that way. The industry in general has seen a lot of growth in the Ultra-​Short bond fund space -- it'​s up to about $​60 billion in assets. It'​s becoming a much more meaningful part of the investment mix.

​

Federated Investors' President & CEO Chris Donahue spoke Wednesday at Bank of America Merrill Lynch'​s "Banking and Financial Services Conference" in New York, where he talked about money market funds and the need to "​be ready for all activities" in the post-​MMF reform world. He also discussed consolidation, as well as a range of other money market fund issues, including the stickiness of assets thus far. Also, we review a story in U.​K.-​based publication Treasury Today called, "Why Size Matters for MMF Sponsors," which also discusses consolidation in the MMF industry and why reforms may accelerate the trend.

Donahue says, "The amazing thing is that our customers, and most money market fund customers, have stayed throughout this entire period of low rates, derision from regulators, and consternation [​about] what'​s going to happen. If you look at the recent surveys, 70 to 80 percent of people say, '​If we'​re in these prime funds, we'​re going to stay there in any event.' But ... the customers are not fully focused on it in terms of actually moving -- that'​s going to be next year. So you can read all the announcements where there'​s $​235 billion worth of money going to move from Prime to Govie, and you can see estimates all over the lot as to what that will be, but we haven'​t seen that yet in our client base."

He continues, "What we have done is construct products, buckets, to catch clients in all areas. Earlier this week we put out the institutional funds -- the ones that will have 4 zeros and will be called floating NAV funds. We'​ve done the retail funds earlier this year, and we talk about having a private fund that we will perhaps start offering in the first quarter.... We talk about creating collective funds as well." (​See our Nov. 17 News, "Federated Designates Inst MMFs.")

Donahue added, "​We have a family of $​10 billion in a handful of international funds that can also work in this way. Our answer is -- be ready for all activities. And we think this is the best answer." He also believes there is an opportunity to capture deposits from large banks that are pushing money off their balance sheets due to regulatory restrictions.

On the recent consolidation trend, Donahue said talks have picked up, but the trend has been ongoing for some time. "​Before 2008, there was over 200 firms offering money market funds. In 2014 that dropped to 84. Today that number is in the low 60s, so you'​ve seen a steady decline. Right now, 95% of the assets are in the top twenty five, so there'​s still a few that are looking for a warm and loving home for their money funds.... And as recently shown by the BofA maneuver, even large amounts of money can move. We'​re in it for the long haul and we think there will be continuing opportunities among those offering the services to do consolidation." He added, "The fact that there are 140 less players doesn'​t really feel like there'​s that much less competition. The customers don'​t want to put all of their money market fund assets with one player so they'​re going to be diversified."

On the impact of rising interest rates, Donahue said this cycle probably won'​t be like past cycles when there were initial outflows. "Back in 2003-​2005, you did see some of that, and you saw some money move because they could do better direct. However, this time around, the people that are in the money funds already have been '​decanted' of a yield attitude, because they'​ve been getting zero or one basis point for one heck of a long time. So, if they were interested in yield, they'​re already out of the system, which means that basically the people that are in money funds today are in it because it'​s a cash management system. So we don'​t foresee a big movement out of funds because of that rate move." Also, he said, when rates rise, hopefully in December, "that that will set the stage for us recapturing a good bit of the waivers, and I think everyone else as well in this business will be doing the same thing."

In other news, the Treasury Today article explains, "​Treasurers who park cash in money market funds may have noticed that their investment options have become somewhat narrower over recent years. But the trend towards greater industry consolidation may not be entirely set in stone. Blackrock'​s striking acquisition this month of Bank of America Corp'​s money market fund (​MMF) business is expected to be followed by more deals as regulatory change and historically low interest rates drive industry consolidation on both sides of the Atlantic."

It continues, "The money fund business really favours large players, because they can leverage the liquidity business as part of their broader strategy," says Marina Cremonese, Assistant Vice President, Analyst at Moody'​s Investor Services. "It is a business that can be profitable but it needs size for that. But in the current environment with low interest rates, many fund sponsors have been waiving their fees and that means their profits have been reduced." Those pressures have in turn led to a reduction in the number of funds, both in the US and Europe."

The piece continues, "In the past few years we have seen Federated Investors agree to acquire $​1.​1bn in assets from Huntington Asset Advisors, Aberdeen Asset Management purchase Scottish Widows Investment Partnership (​SWIP) from Lloyds and RBS selling its MMF business to Goldman Sachs. Now in the US, the number of providers offering stable net asset value (​CNAV) funds has fallen to 70 from 133 in 2008; in Europe, meanwhile, 38 fund complexes offering CNAV products have been reduced to 25 over the same period."

The Treasury Today article adds, "[​Industry consolidation] is particularly acute in the US," says Vanessa Robert, Vice President, Senior Credit Officer at Moody'​s Investor Service.... "​Regulation is a key factor," Robert says. "​It is weighing heavily on the already challenging landscape for money funds and it might accelerate this trend. The ability for mid-​tier sponsors to thrive has been materially reduced."

It continues, "​The competitive landscape is not immutable though. This is because the money fund industry'​s main competitors for corporate liquidity, the banks, have their own regulatory pressures to contend with right now, not least the implementation of the Liquidity Coverage Ratio (​LCR) which came into effect in January 2015.... A recent survey by J.​P. Morgan Asset Management of 408 CIOs, treasurers and other senior corporate decision-​makers across the globe suggests this could be a big opportunity for the MMF industry. Almost half of the survey respondents said that their banks had encouraged them to move non-​operational deposits off the banks' balance sheet, while a significant number (​20%) indicated that they plan to increase their allocations to MMFs in 2016."

Finally, Treasury Today adds, "Perhaps this is why some smaller asset managers have actually been looking to expand their MMF offerings despite the apparent amalgamating forces the industry is currently subject to. UBS Global Asset Management (​UBS GAM), ranked in 2015 as the 23rd largest asset manager by measure of assets under management (​AUM), is one example. This year UBS GAM launched two new CNAV funds denominated in euro and sterling, to take advantage of the cash being reallocated from the banks to MMFs."

​

The Investment Company Institute released its latest "Money Market Fund Holdings" summary (​with data as of Oct. 31, 2015) yesterday, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (​WAM and WAL) for Prime and Government money market funds. Earlier this week, JP Morgan Securities' also released its latest "Prime Money Market Fund Holdings Update," which reviews trends and also discusses the re-​categorization of Prime to Government MMFs. We excerpt from these below. (​See our Nov. 12 News, "Nov. Portfolio Holdings: Time Deps, Agencies Jump; Repos Plummet.")

ICI'​s "Prime and Government Money Market Funds' Daily and Weekly Liquid Assets" table shows Prime Money Market Funds' Daily liquid assets at 27.​7% as of October 31, up from 24.​2% on September 30. Daily liquid assets were made up of: "All securities maturing within 1 day," which totaled 24.​0% (​vs. 20.​9% last month) and "Other treasury securities," which added 3.​6% (​up from 3.​3% last month). Prime funds' Weekly liquid assets totaled 41.​3% (​vs. 40.​8% last month), which was made up of "​All securities maturing within 5 days" (​34.​8% vs. 34.​7% in September), Other treasury securities (​3.​6% vs. 3.​3% in September), and Other agency securities (​2.​9% vs. 2.​9% a month ago).

The ICI holdings report says Government Money Market Funds' Daily liquid assets totaled 62.​3% as of October 31 vs. 59.​1% in September. All securities maturing within 1 day totaled 29.​1% vs. 26.​5% last month. Other treasury securities added 33.​3% (​vs. 32.​7% in September). Weekly liquid assets totaled 78.​6% (​vs. 82.​1%), which was comprised of All securities maturing within 5 days (​38.​9% vs. 40.​7%), Other treasury securities (​32.​6% vs. 32.​6%), and Other agency securities (​7.​1% vs. 8.​7%).

ICI'​s "​Prime and Government Money Market Funds' Holdings, by Region of Issuer" table shows Prime Money Market Funds with 45.​2% in the Americas (​vs. 54.​4% last month), 18.​3% in Asia Pacific (​vs. 18.​1%), 36.​4% in Europe (​vs. 27.​1%), and 0.​2% in Other and Supranational (​vs. 0.​4% last month). Government Money Market Funds held 84.​2% in the Americas (​vs. 93.​0% last month), 0.​8% in Asia Pacific (​vs. 0.​6%), 15.​0% in Europe (​vs. 6.​4%), and 0.​0% in Supranational (​vs. 0.​1%).

The table, "​Prime and Government Money Market Funds' WAMs and WALs" shows Prime MMFs WAMs at 35 days as of October 31, up from a low of 32 days last month. WALs were at 69 days, up from 67 days last month. Government MMFs' WAMs was at 40 days, up from 38 last month, while WALs was at 89 days, up from 83 days. ICI'​s release explains, "​Each month, ICI reports numbers based on the Securities and Exchange Commission'​s Form N-​MFP data, which many fund sponsors provide directly to the Institute. ICI'​s data report for June covers funds holding 94 percent of taxable money market fund assets." Note: ICI publishes aggregates but doesn'​t publish individual fund holdings.

In separate coverage of the latest Portfolio Holdings data, JP Morgan Securities' Short Duration Strategy team writes, "Money market fund flows were mostly flat during October, and have been virtually unchanged year-​to-​date. Total prime fund AuM now registers $​1,​442bn, while government fund AuM totals $​1,​014bn. Despite no reform-​related investor outflows YTD, a current theme has been for complexes to convert selected prime funds to government status. Currently, $​214bn is scheduled for conversion, with most conversions to occur before the end of this year."

They explain, "​It is interesting to note is that these funds are still categorized as "​prime", up until their respective conversion dates. Obviously, when a given fund'​s category switches from "​prime" to "​government" on its final conversion date, there will be a large decrease in prime AuM and concurrent increase in government fund AuM. An alternative shadow measure can be used when taking into consideration the current asset allocations of converting funds. Currently, about 60% of converting prime fund assets is invested in government product. That said, using this shadow measure AuM could actually be considered to be $​1,​317bn for prime funds and $​1,​140bn for government funds."

JPM'​s update continues, "Average maturities began to level off after briefly rebounding following the September FOMC meeting. In order to participate in a potential rate increase, MMFs shortened maturities to record low levels in the months leading up to the September meeting. With the Fed'​s inaction to raise rates, fund managers began to briefly redeploy cash out on the curve. With the Fed now likely to move in December, WAMs have leveled off, and we expect them to creep back in over the course of the next month."

They add, "On balance, prime holdings of banks increased by $​129bn. Conversely, with more dealer supply available in the market, prime funds scaled back on RRP usage month-​over-​month by $​139bn. Money market funds accounted for $​175bn or 77% of total Fed RRP usage at October month-​end. Prime MMFs represented $​74bn in usage, while government funds took down $​101bn."

Finally, JPM'​s piece tells us, "​Earlier this month, BlackRock announced its plans to acquire Bank of America Capital'​s entire cash management business sometime before the end of 1H16.... This acquisition comes as one of the largest ever in the money market fund space, and goes to show the continuing industry trend of consolidation as both small and large funds weigh the increasing costs of doing business. Looking forward, further consolidation may occur.... It is unclear just how much of an impact this will have on market structure, but may cause less diversification of demand, and could diminish pricing power for smaller funds."

In other news, the Federal Reserve Bank of New York released a "Statement Regarding Term Reverse Repurchase Agreements," which says, "The Desk plans to offer $​300 billion in term RRPs that cross the year-​end date. These operations will be conducted in addition to the authorized overnight RRPs, which remain subject to a separate overall size limit authorized by the FOMC. A tentative schedule of the term operations spanning the year-​end follows below. This schedule will be updated on or around December 17 with additional information, including the amounts offered and the maximum offering rates."

Barclays money market strategist Joseph Abate writes in his latest "US Money Markets," on future RRP supply, "Adding to the extra front-​end supply, we expect the Fed to offer a sizeable ($​200bn) term RRP program spanning year-​end as it has done every quarter-​end since last year. Most of the demand for the term RRP comes from money market funds looking to replace the private sector repo they have been pushed out of by window-​dressing dealers on quarter-​ends. Clearly, the Fed could decide to dispense with the term RRP this year -- especially if it begins lift-​off with a large (​and possibly, unlimited) overnight RRP program as we expect it might. We expect that the Fed will announce any details regarding a potential term RRP with the rate announcement on December 17. Recall that the Fed plans on releasing two statements at lift-​off: one that will cover the macroeconomic rationale for increasing rates and a second one that will outline all of the parameters behind its tools. Since year-​end market thinness is transitory, it isn'​t a sufficient impediment to the Fed'​s lift-​off plans."

​

Several money market fund family changes have come to our attention in recent weeks, including Prime to Government fund conversions by Columbia Threadneedle and Dreyfus. We also report on how Dreyfus, the 6th largest US money fund family with $​161.​9 billion in assets, will categorize their Institutional, Retail, and Government funds. Further, we have more information on when Deutsche will convert its Prime MMFs to Government funds. Also, there'​s fund merger news from Fidelity and BNP Paribas. Yesterday, we reported on Federated'​s announcement of which funds it will categorize as Institutional; Federated also announced plans to offer a stable value private fund to qualified investors in Q1 of 2016. (​See our Nov 17 News, "Federated Designates Inst MMFs; Wells, Goldman, BlackRock Gain in Oct.," and see our November Money Fund Intelligence for the latest overall recap on fund lineup changes.)

Through mutual fund publication ignites, we learned recently that Columbia Threadneedle Investments plans to convert its $​1.​5 billion Columbia Money Market Fund to a Government fund. The SEC filing says, "​At a meeting held on September 16-​18, 2015, the Board of Trustees of the fund listed above (​the Fund) considered the likely effects of the rule changes on the Fund and approved a recommendation made by the Fund’​s investment manager, Columbia Management Investment Advisers, LLC, to convert the Fund to a government money market fund on or about October 1, 2016. On such date, the Fund will be re-​named Columbia Government Money Market Fund. As a government money market fund, the Fund will be required to invest 99.​5% of its assets in cash, government securities and repurchase agreements collateralized by cash or government securities. By converting to a government money market fund, the Fund will seek to maintain a stable net asset value per share and will not be subject to liquidity fees or redemption gates."

Dreyfus too has begun making lineup changes to its money funds. In a document entitled, "Money market Reform: Looking Ahead," the BNY Mellon company outlines the latest plans for its funds, including fund conversion, mergers, and classifications. It says, "​As the money market fund industry prepares to implement the SEC'​s regulatory reforms, Dreyfus is working diligently to realign our money market fund lineup to offer a diversified mix of cash management products to support the various liquidity needs and requirements of our valued clients. As such, we highlight below our first phase of product announcements, including anticipated implementation dates that have been approved by each fund'​s respective governing board."

Dreyfus converted its $​2.​3 billion Dreyfus Inst Reserves Money Fund, the former BNY Hamilton fund, into Dreyfus Inst Preferred Govt Money Market Fund on Nov. 1. (​See the new prospectus here.) On May 1, 2016 it plans to convert Dreyfus Variable Investment Fund Money Market Portfolio, which will become Dreyfus Variable Investment Fund Govt MMP. With these latest conversion announcements, the total assets converting from Prime to Government now stands at roughly $​237 billion.

Among the fund mergers detailed, Dreyfus Municipal Money Market Fund was merged into General Municipal MMF (​Nov. 13); Dreyfus NY AMT-​Free Municipal Cash Management was merged into Dreyfus NY Municipal Cash Management (​Aug. 28); Dreyfus Worldwide Dollar MMF was merged into Dreyfus Liquid Assets (​Sept. 18); and Dreyfus 100% US Treasury will be merged into General Treasury Prime MMF on Dec. 4, 2015. Also, Dreyfus BASIC Municipal MMF was liquidated on Aug. 18.

Dreyfus also declared which of its funds will be considered Institutional going forward, subject to the Floating NAV and fees and gates once reforms are implemented. They are: Dreyfus Cash Management; Dreyfus Institutional Cash Advantage Fund; Dreyfus Institutional Preferred Money Market Fund Prime; Dreyfus Institutional Preferred Plus Money Market Fund Prime; and Dreyfus Tax Exempt Cash Management.

The firm also designated which funds will be Retail, post-​reforms. They are: Dreyfus AMT-​Free Municipal Reserves; Dreyfus BASIC Money Market Fund; Dreyfus Liquid Assets; Dreyfus California AMT-​Free Municipal Cash Management; Dreyfus Municipal Cash Management Plus; Dreyfus New Jersey Municipal Money Market Fund; Dreyfus New York Municipal Cash Management; General California Municipal Money Market Fund; General Money Market Fund Prime; General Municipal Money Market Fund; and General New York Municipal Money Market Fund.

In addition, Dreyfus expanded the strategies of two Treasury funds to include Treasuries and Agencies -- Dreyfus Inst Reserves Treasury Prime MMF changed into Dreyfus Inst Treasury and Agency Cash Advantage on Sept 1; and Dreyfus US Treasury Reserves changed to General Treasury and Agency MMF on Sept. 1. Other fund changes that took effect on Sept. 1 included: Dreyfus AMT Free Municipal Reserves changed its name to General AMT-​Free Municipal MMF; Dreyfus Inst Reserves Treasury Prime MMF changed into Dreyfus Inst Treasury Prime Cash Advantage; Dreyfus NJ Municipal Cash Management changed into General NJ Municipal MMF; and, General NY Municipal MMF changed into General NY AMT-​Free Municipal MMF.

Finally, Dreyfus categorized its Government funds. They are: Dreyfus Govt Cash Management; Dreyfus Govt Prime Cash Management; Dreyfus Inst Preferred Govt MMF; Dreyfus Inst Treasury and Agency Cash Advantage; Dreyfus Inst Treasury Prime Cash Advantage; Dreyfus Treasury and Agency Cash Management; Dreyfus Treasury Prime Cash Management; General Treasury and Agency MMF; General Government Securities MMF; General Treasury Prime MMF; and Dreyfus VI Fund Govt MMP (​effective May 1, 2016). (​Note: Fidelity will also merge its US Government Reserves (​FGRXX) into Fidelity Govt Money Market: Premium Class (​FZCXX) on Friday, Nov. 20.)

Further, we learned more about Deutsche Wealth and Asset Management'​s Prime to Government conversions, which we first reported in our July 21 News, "Deutsche Announces Reform Plans, Will Convert Most Prime MFs to Govt. Deutsche announced that it will convert 5 Prime Institutional portfolios into Government funds, including Cash Management Fund; Cash Reserves Fund Institutional; Deutsche Money Market Series; Deutsche Money Market VIP; and Prime Series of Cash Reserve Fund, Inc. It will keep just one Prime Institutional Fund, the $​113 million Deutsche Variable NAV Money Market Fund. A recent prospectus filing provides additional information on the fund conversions, including the date that conversions will be completed, May 2, 2016.

Finally, we learned of a recent offshore money fund merger. A shareholder update issued by BNP Paribas Global Liquidity Funds says, "​The purpose of this circular is to explain to you our proposal to merge BNP Paribas GLF USD (​the "​Merging Fund"), a sub-​fund of BNP Paribas Global Liquidity Funds plc with BNP Paribas InstiCash USD (​the "​Receiving Fund"), a sub-​fund of BNP Paribas InstiCash, a Luxembourg umbrella SICAV. This circular also sets out the common terms of the proposed merger and explains how the merger is to be effected in accordance with the European Communities (​Undertakings for Collective Investment in Transferable Securities) Regulations, 2011, as amended (​the "​UCITS Regulations")."

​

A press release issued late yesterday entitled, "Federated Investors, Inc. Announces Plans for Institutional Prime and Tax-​free Money Market Funds," maps out the latest phase of the 4th largest money fund provider'​s reform strategies. It says, "Federated Investors, one of the nation'​s largest investment managers, today announced further refinements to its plan to restructure the company'​s line of money market funds by delineating which money market funds will be categorized as institutional money market funds under Rule 2a-​7 of the Investment Company Act of 1940 and compliant with regulations issued by the U.​S. Securities and Exchange Commission (​SEC) in July 2014. Federated announced refinements to its government and retail money market funds in February and June 2015." (​See our Feb. 20 News, "Federated Announces Changes; Targets Floating MMFs That Won'​t Float, and our June 5 News, "Federated Announces Retail Money Fund Plan, Streamlines MF Lineup.") Below, we also review our latest Money Fund Market Share rankings.

The release explains, "Federated expects to offer the four institutional money market funds ... Federated Money Market Management, Federated Prime Obligations Fund, Federated Prime Value Obligations Fund, and Federated Tax-​Free Trust. Each of the funds ... beginning on Oct. 14, 2016, will have an initial net asset value of $​1.​0000 that may fluctuate, as well as required provisions for fees and gates. The funds may offer a potential yield premium, when compared to government money market funds."

Federated adds, "​The company also continues to work with institutional clients to consider options for various institutional floating net asset value money market funds, as well as separate accounts and stable value collective funds, in an effort to better meet their liquidity needs. The company also plans to begin offering a stable value private fund for qualified investors in the first quarter of 2016.... Refinements to Federated'​s money market fund product line will continue to evolve as market, client or regulatory changes/​guidance occur before the Oct. 14, 2016, final compliance date for the 2014 money market fund rules."

J. Christopher Donahue, president and chief executive officer, comments, "As a result of an active dialogue with our sizeable and varied client base, Federated will offer four Rule 2a-​7 money market funds designed specifically for institutional investors. Federated, as a leading provider of liquidity services for the last four decades, continues to work with our clients in an effort to meet their liquidity needs today and in the future."

In other news, Crane Data'​s latest Money Fund Intelligence Family & Global Rankings, which rank the market share of managers of money market mutual funds in the U.​S. and globally, was sent out to shareholders last week. The November edition, with data as of Oct. 31, 2015, shows asset increases for the majority of US money fund complexes in the latest month as well as over the past 3 months. Assets increased by $​53.​6 billion overall, or 2.​0%, in October; over the last 3 months, assets are up $​53.​7 billion, or 2.​1%. For the past 12 months through Oct. 31, total assets are up $​96.​0 billion, or 3.​8%. Below, we review the latest market share changes and figures. (Note: Crane Data'​s November Money Fund Intelligence was released Nov. 6, and our latest Money Fund Portfolio Holdings was released Nov. 10.)

The biggest gainers in October were Wells Fargo, Goldman Sachs, BlackRock, JP Morgan, and SSgA, rising by $​10.​7 billion, $​9.​1B, $​8.​4B, $​7.​7B, and $​7.​1 billion, respectively. BlackRock, SSgA, Wells Fargo, Fidelity, and JP Morgan had the largest increases over the 3 months through Oct. 31, 2015, rising by $​15.​9 billion, $​14.​2B, $​11.​8B, $​11.​3B, and $​5.​1B, respectively. (​Our domestic U.​S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product, and the combined "​Family & Global Rankings" are available to our Money Fund Wisdom subscribers.)

Over the past year through Sept. 30, 2015, BlackRock showed the largest asset increase (​up $​28.​3B, or 14.​3%), followed by Fidelity (​up $​17.​6B, or 4.​4%), Morgan Stanley (​up $​16.​0B, or 14.​7%), JP Morgan (​up $​15.​8B, or 6.​4%), and SSgA (​up $​11.​0B, or 13.​6%). Other asset gainers for the year include: Wells Fargo (​up $​10.​3B, or 9.​3%), Vanguard (​up $​5.​1B, or 2.​9%), Northern (​up $​5.​0B, 6.​6%), First American (​up $​3.​4B, 8.​7%), Goldman Sachs ($​3.​2B, 2.​2%), and Franklin (​up $​2.​8B, or 13.​1%). The biggest decliners over 12 months include: BofA (​down $​4.​8B, or 8.​8%), Schwab (​down $​4.​1B, or 2.​5%), Invesco (​down $​3.​4B, or 5.​8%), RBC (​down $​1.​4B, or 7.​7%), and American Funds (​down $​795M, or 4.​9%). (​Note that money fund assets are volatile month to month.)

Our latest domestic U.​S. money fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $​421.​6 billion, or 16.​0% of all assets (​up $​4.​0 billion in October, up $​11.​3B over 3 mos., and up $​17.​6B over 12 months). Fidelity was followed by JPMorgan with $​262.​3 billion, or 10.​0% market share (​up $​7.​7B, up $​5.​1B, and up $​15.​8B for the past 1-​month, 3-​mos. and 12-​mos., respectively). BlackRock remained the third largest MMF manager with $​225.​4 billion, or 8.​6% of assets (​up $​8.​4B, up $​15.​9B, and up $​28.​3B). (​BlackRock should become the 2nd largest manager once it acquires BofA'​s approximately $​49.​8B in money market fund assets early next year; see our Nov. 3 News, "BlackRock Taking Over BofA MMFs in One of Biggest Acquisitions Ever.") Federated Investors was fourth with $​208.​0 billion, or 7.​9% of assets (​up $​1.​8B, up $​1.​7B, and down $​587M). Vanguard remained in fifth place with $​177.​2 billion, or 6.​7%, (​up $​1.​4B, up $​3.​2B, and up $​5.​1B).

The sixth through tenth largest U.​S. managers include: Dreyfus ($​161.​9B, or 6.​1%), Schwab ($​159.​5B, 6.​1%), Goldman Sachs ($​146.​3B, or 5.​6%), Morgan Stanley ($​124.​9B, or 4.​7%), and Wells Fargo ($​121.​8B, or 4.​6%). The eleventh through twentieth largest U.​S. money fund managers (​in order) include: SSgA ($​91.​4B, or 3.​5%), Northern ($​80.​9B, or 3.​1%), Invesco ($​55.​3B, or 2.​1%), BofA ($​49.​8B, or 1.​9%), Western Asset ($​45.​8B, or 1.​7%), First American ($​42.​4B, or 1.​6%), UBS ($​37.​6B, or 1.​4%), Deutsche ($​32.​3B, or 1.​2%), Franklin ($​23.​8B, or 0.​9%), and RBC ($​16.​5B, or 0.​6%), which displaced American Funds from the top 20. Crane Data currently tracks 67 U.​S. MMF managers, one less than last month. (William Blair exited the space, liquidating its lone MMF, William Blair Ready Reserve. See our Oct. 28 News, "Pioneer, Nationwide Converting Prime to Govt; 2 More Exit MMF Space.")

When European and "​offshore" money fund assets -- those domiciled in places like Dublin, Luxembourg, and the Cayman Islands -- are included, the top 10 managers match the U.​S. list, except for Goldman moving up to No. 4 (​dropping Vanguard to 7), and Wells Fargo moving to 10, dropping SSgA to 12 in the Global rankings. Looking at the largest Global Money Fund Manager Rankings, the combined market share assets of our MFI XLS (​domestic U.​S.) and our MFI International ("​offshore"), the largest money market fund families are: Fidelity ($​428.​6 billion), JPMorgan ($​390.​6 billion), BlackRock ($​325.​2 billion), Goldman Sachs ($​230.​0 billion), and Federated ($​216.​5 billion).

Dreyfus/​BNY Mellon ($​186.​0B), Vanguard ($​177.​2B), Schwab ($​159.​5B), Morgan Stanley ($​144.​5B), and Wells Fargo ($​122.​7B) round out the top 10. As previously mentioned, Wells Fargo moved up from 12 to 10, displacing SSgA, which dropped to 12, and moving ahead of Western, which remained in 11. These totals include offshore US Dollar money funds, as well as Euro and Pound Sterling (​GBP) funds converted into US dollar totals.

Finally, our November 2015 Money Fund Intelligence and MFI XLS show that both net and gross yields ticked up October. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (​currently 820), remained at 0.​02% for both the 7-​Day Yield and the 30-​Day Yield (​annualized, net) Average. The Gross 7-​Day Yield and 30-​Day Yield were 0.​18% (​up one basis point from last month). Our Crane 100 Money Fund Index shows an average 7-​Day and 30-​Day Yield of 0.​05%, up from 0.​04% in September. Also, our Crane 100 shows a Gross 7-​Day and 30-​Day Yield of 0.​21% (​unchanged). For the 12 month return through 10/​31/​15, our Crane MF Average returned 0.​02% and our Crane 100 returned 0.​03%. The number of funds dropped to 820, from 822 last month.

Our Prime Institutional MF Index (​7-​day) yielded 0.​06% (​unchanged), while the Crane Govt Inst Index was at 0.​02% (​unchanged). The Crane Treasury Inst, Treasury Retail, Govt Retail Index, and Prime Retail Indexes all yielded 0.​01%. The Crane Tax Exempt MF Index also yielded 0.​01%. The Gross 7-​Day Yields for these indexes were: Prime Inst 0.​26% (​up from 0.​25% last month), Govt Inst 0.​13% (​unchanged), Treasury Inst 0.​09% (​unchanged), and Tax Exempt 0.​09% (​unchanged) in September. The Crane 100 MF Index returned on average 0.​00% for 1-​month, 0.​01% for 3-​month, 0.​03% for YTD (​up 1 bp), 0.​03% for 1-​year, 0.​03% for 3-​years (​annualized), 0.​04% for 5-​year, and 1.​33% for 10-​years. (Contact us if you'​d like to see our latest MFI XLS, Crane Indexes file or market share numbers.)

​

A press release entitled, "J.​P. Morgan Asset Management Releases 2015 Global Liquidity Survey Results, Identifies Investor Sentiment amid Shifting Market and Regulatory Landscape," announced late last week that JPMAM released the findings of its "2015 Global Liquidity Investment PeerView" survey, which "highlights the current sentiment of more than 400 respondents, including CIOs, treasurers and other senior decision-​makers, representing more than 400 unique entities from all sectors of the global economy." It says, "The survey uncovered widespread industry trends, as the decision-​makers confront both a shifting interest rate environment and far-​reaching regulatory reforms." The report shows that 70% of respondents (​institutional investors) who have Prime money funds intend to stay in them, while 83% will either maintain their allocations to money funds or increase them. The JP Morgan survey comes on the heels of a recent Sungard survey (​see our Nov. 9 News, "Sungard Survey Shows Majority of Corps Will Stick w/​Prime; Portals") that also says the majority of corporate investors will stick with Prime funds after the new SEC rules requiring these funds to have a floating NAV go into effect in October 2016.

John Donohue, CEO of Investment Management Americas and Head of Global Liquidity at J.​P. Morgan A.​M., explains, "The evolving market and regulatory landscape presents opportunities, as well as challenges, to liquidity investors as they re-​evaluate their cash investment decision-​making. As they anticipate these changes -- including the potential first Fed rate hike in more than nine years, possible tightening by the Bank of England and the impact of Basel III -- they are preparing to re-​assess their short-​term investment portfolios."

The press release says, "Key findings from the 2015 survey include: Investment in money market funds still strong Based on the market outlook for next year, 63% of respondents will continue with the same allocation to money market funds, while an additional 20% will increase their allocations. In the U.​S., of the respondents who are currently invested in a prime money market fund, 70% intend to still use it when SEC 2a-​7 money market rules go into effect next year."

The findings continue, "Regulatory pressures. Respondents are grappling with a host of regulatory pressures, including SEC Rule 2a-​7 reform in the U.​S., pending money market fund regulation in Europe and Basel III around the globe. Almost half of respondents report that their banks have encouraged them to move non-​operating deposits off the banks' balance sheet. Also, approximately 40% of participants plan to make changes to their investment policies given the current regulatory landscape."

Other findings include, "Safety and liquidity remain priorities. As indicated by their choice of investments, survey respondents focus on safety and liquidity: Almost half of global cash assets are still placed in bank deposits. Usage is most prevalent in Asia, where 57% of assets are held in bank deposits, vs. 44% in Europe and 42% in the Americas. Money market funds represent roughly one-​third of cash assets in the Americas and Europe. Risk is still a focus While risk management continues to be critically important, the framework for assessing risk is shifting for many liquidity investors."

JPMAM'​s release adds, "Negative interest rates in Europe and low rates globally are compelling organizations to re-​evaluate their appetite for risk and more precisely calculate their short-​term liquidity needs. Search for yield Separately managed accounts (​SMAs), customized portfolios that allow investors to define their own risk, security and liquidity parameters, will continue to account for a significant share of cash allocations. Twenty percent of respondents in the Americas and 16% in Europe plan to increase their allocations to cash assets that are invested with SMAs or outside managers. Investor demand for SMAs can be seen as a clear demonstration of the need for yield."

The "Executive Summary" of the 35-​page PeerView survey, subtitled, "Cash in Motion: Laying the Groundwork for New Rates and Regulations," says, "J.​P. Morgan surveyed respondents at a time of transition, as investors prepare for significant changes in both the interest rate and regulatory arenas. As they anticipate the first Federal Reserve (​Fed) rate hike in more than nine years and eventual tightening by the Bank of England investors expect continued stimulus from the European Central Bank (​ECB). New SEC rules governing money market funds take effect in October 2016. Basel III regulations, which redefine global standards for bank capital, liquidity and leverage, will continue to impact banks' appetites for non-​operating deposits. On all these fronts, liquidity investors are preparing to restructure and reposition their short-​term investment portfolios."

It continues, "​As our survey reports, that process has already begun. Many organizations are contemplating changes in their investment policies. Floating net asset value (​NAV), the use of repurchase agreements (​repo), requirements for money market fund ratings -- these are among the subjects that investors may need to reconsider or more precisely define in their investment policies. An evaluation of the relative merits of bank deposits vs. money market funds will be an ongoing process; the spreads between government and prime money market funds will require close attention in a changing rate environment. Investors will be looking for innovative products and solutions from their providers. A growing number of investors have opted for the individualized approach of separately managed accounts, and that pace of growth may accelerate."

JPMAM adds, "The churn of market and regulatory change presents opportunities, as well as challenges, to investors as they re-​assess their cash investment decision-​making. That process -- essential but never simple -- will greatly benefit from a peer comparison as firms consider how their policies and practices resemble, and differ from, those of their peers. In this regard, the J.​P. Morgan Global Liquidity Investment PeerView survey can serve as a valuable industry benchmark."

Drilling down into some of the survey responses, under the header, "Prime Money market Funds: Minimum Net Yield," it says "For respondents who are not currently invested in prime money market funds, or who do not intend to continue using them, when asked how much net yield a prime money market fund must pay over a government money market fund before they would consider investing in one, more than half indicated that yield is not a factor."

The report'​s "Conclusion" explains, "Even as investors anticipate a new rate environment, they confront interest rates and yields that are exceptionally low by any historical measure. As a result, many investors are rethinking both their appetite for risk and their need for short-​term liquidity. As they do so, many companies and organizations have the ability to be more adept at forecasting cash flow. They are therefore in a better position to segment their cash between short-​term working capital requirements, core cash and strategic cash that is not required to support daily cash flow needs."

It adds, "​Liquidity investment is further complicated by a changing regulatory environment.... Whatever their investment policy allows, liquidity investors must grapple with competing forces -- a need for yield on the one hand, and a mandate to control risk on the other. (​Risk control covers both liquidity risk and preservation of principal risk.) As investors re-​evaluate their decision-​making, the peer comparison provided by the J.​P. Morgan Global Liquidity Investment PeerView survey can provide an especially useful perspective."

​

The Investment Company Institute discusses shifting money fund assets and the reclassification of Prime funds to Government in their latest "Viewpoint," entitled, "Changes to Money Market Funds Are Showing Up in Data." Last week, ICI'​s "Money Market Fund Assets" data series showed a big decrease in Prime assets and increase in Government assets last week as money managers began converting Prime funds to Govt funds. (​ICI'​s latest numbers only show minor shifts this week, however. See today'​s "Link of the Day" for more.) Also, mutual fund publication Ignites recaps recent Prime to Govie conversions in an article Wednesday, "The Great Money Fund Migration Kicks Off." Finally, another big conversion is finalized today (​and will be reflected in next week'​s asset totals) as the $​15.​7 billion Fidelity Cash Management Prime Fund is officially merged into Fidelity Government Money Market Fund.

ICI Senior Director for Industry and Financial Analysis Sean Collins writes, "In July 2014, the Securities and Exchange Commission (​SEC) adopted new regulations for money market funds. One major provision of the rule required prime money market funds sold to institutional investors to adopt "​floating NAVs" -- net asset values that are priced to four decimal points (​one-​hundredth of one cent for a $​1.​00 share). Prime money market funds invest in a range of short-​term securities, including commercial paper, large certificates of deposit, and floating rate notes.... Once implemented on October 14, 2016, the new rule will allow only government money market funds (​funds that invest almost entirely in Treasury and government agency securities) and prime and tax-​exempt money market funds sold to retail investors to offer a stable NAV."

He explains, "Analysts have predicted that the new rule will lead to a large decline in the assets of prime money market funds and a potentially offsetting rise in the assets of government money market funds. They predict that institutions that have previously invested in prime money market funds with stable NAVs will be either unable or unwilling to hold floating NAV money market funds with fees and gates, and thus will shift to government money market funds, which under the SEC'​s new rule can continue to offer a stable NAV without fees or gates."

Collins continues, "In anticipation of this trend, many money market fund advisers have announced plans to change their prime funds into government funds in advance of the October 2016 deadline. These changes began to appear last week in the data that ICI reports. On November 5, we released our weekly report on money market fund assets for the week ending Wednesday, November 4. Assets in prime money market fell sharply ($​34.​68 billion) while assets in government funds rose ($​18.​34 billion). In coming weeks, as other advisers undertake similar changes, readers can expect to see continued large shifts of assets from prime money market funds to government money market funds. ICI will continue to explain these changes -- including their impact on our monthly money market fund reports -- as the industry moves toward full implementation of the SEC rule."

Ignites' "Great Money Fund Migration" story says, "Several Franklin and Dreyfus prime funds last week converted to government funds, kicking off an industrywide migration of an estimated $​230 billion in assets slated to shift out of the category. While funds undergoing the conversions have been steadily selling off commercial paper and other prime holdings in favor of government securities, the name changes that started last week make the switches official. And a number of midsize and smaller providers have now announced conversions, joining the ranks of giants like Fidelity and BlackRock, which put forth their plans in the first months of the year." (​See our Nov. 6 News, "Nov. MFI Features Consolidation, Govt Conversions, Prior, BofA Deal" and our November Money Fund Intelligence.)

The ignites piece continues, "The conversions announced to date will push about $​230 billion from prime to government funds industrywide, Crane Data estimates. Prime funds, both retail and institutional, represented about $​1.​4 trillion in assets as of Nov. 4, according to Investment Company Institute data. The industry'​s "​most popular guessing game" right now is trying to predict whether investors who are not automatically moved as part of conversions will shift their money out of prime funds in the months leading up to the October 2016 deadline, and if so, how much will move, says Peter Crane, CEO of Crane Data. "​At this point, these automatic conversions are really the only solid numbers. Everything else is a guess," he says."

It adds, "SunGard found that 60% of the approximately 25 U.​S. corporate treasurers it recently surveyed as part of a broader look at global cash management trends anticipate continuing to invest in prime funds at a similar level that they already do once the SEC reforms are in place. On the other hand, 37% said they plan to decrease their prime holdings. Goldman Sachs Asset Management predicted in an August research piece that as much as $​980 billion will leave the prime category due to the floating NAV and the threat of gates and liquidity fees' being imposed on non-​government products."

Further, "​JPMorgan wrote in a November research note that while the fund conversions may be the first wave of outflows from prime funds, once the October 2016 deadline approaches, investors that have until now stayed put are likely to make changes. "​With no sizable outflows experienced [​year-​to-​date], it is very possible that sizable outflows do not occur until the middle of next year as the final rules draw near," according to JPMorgan. "With fund conversions and investor outflows combined, we now believe that the shift in assets away from prime [​money market funds] could be as large as $​600 [​billion] to $​650 [​billion]." Crane Data, on the other hand, expects that Federal Reserve interest rate hikes and greater yields "will keep many investors in prime (​and draw new investors from banks)." About 25% of the category'​s assets will leave, or about $​375 billion, including the $​230 billion from fund conversions, the firm estimates."

Ignites concludes, "But some also predict the prime fund exodus will be followed by a shift back into the products at some point after October 2016, when investors have adjusted to the floating NAV and interest rates are presumably higher. "I think it'​s probably a 2017 event," says Deborah Cunningham, CIO of global money markets at Federated Investors, referring to this later shift. The amount that may return to prime funds will depend to some degree on how much the NAVs of funds that float actually fluctuate and on the Federal Reserve'​s eventual rate increases, she says."

As we mentioned above, on Nov. 13, Fidelity Cash Management Prime Fund officially merges into Fidelity Government Money Market Fund, so expect to see another $​15.​7 billion shift from Prime to Government next week. (​See here for details and see our Oct. 28 News, "Fidelity'​s Prior at AFP on Recent and Pending Changes; No Silver Bullet for more.) Funds that were among the $​26 billion that converted Nov. 1 include: Franklin Institutional Fiducuary Trust Money Market Portfolio, Franklin MMF, and Dreyfus Inst Reserves.

Finally, watch for more conversions in coming weeks and months. On Dec. 1, Fidelity will complete the conversion of its massive $​115.​1 billion Cash Reserves and 2 other Prime funds (​including the $​11.​6 billion Fidelity MMT Retirement portfolio) to Government, and the $​1.​4 billion American Century Premium MMF will also convert to American Century US Govt MMF. Then a series of BlackRock'​s BIF and FFI money funds will convert on Jan. 4.

​

Crane Data released its November Money Fund Portfolio Holdings Tuesday, and our latest collection of taxable money market securities, with data as of Oct. 31, 2015, shows a huge gain in holdings of Other (​Time Deposits), a big gain in Agencies, and smaller gains in CDs, CP, and Treasuries, as well as a giant drop in Repos. Money market securities held by Taxable U.​S. money funds overall (​those tracked by Crane Data) increased by $​61.​8 billion in October to $​2.​616 trillion. MMF holdings decreased by $​30.​1 billion in September, increased by $​35.​0 billion in August, and increased by $​55.​0 billion in July. Repos remained the largest portfolio segment, even as Fed repo plummeted following last month'​s quarter-​end surge; CDs remained the second largest segment. Agencies solidified their hold on third place, driven by Prime funds preparing for reclassification as Government funds. Agencies remained well ahead of both Treasuries and Commercial Paper. Other (​mainly Time Deposits) securities were sixth, followed by VRDNs. Money funds' European-​affiliated securities represented 27.​3% of holdings, up significantly from the previous month'​s 18.​5%. Below, we review our latest Money Fund Portfolio Holdings statistics.

Among all taxable money funds, Repurchase Agreements (​repo) decreased $​119.​8 billion (​16.​5%) to $​608.​6 billion, or 23.​3% of assets, after increasing $​172.​6 billion in September and decreasing $​2.​5 billion in August. Certificates of Deposit (​CDs) were up $​15.​8 billion (​3.​3%) to $​497.​7 billion, or 19.​0%, after dropping $​55.​3 billion in September and increasing $​1.​1 billion in August.

Government Agency Debt increased $​34.​1 billion to $​452.​3 billion, or 17.​3%, after increasing $​34.​5 in September and $​29.​8 billion in August. It was the third straight month of gains for Agencies, fueled by the ongoing conversion of the $​117 billion Fidelity Cash Reserves from Prime to Government. Cash Reserves again accounted for more than half of the monthly increase in Agencies. (Fidelity Cash Reserves now holds 56% in Agencies, up from 41% last month, 26% in August, and 19% July 31.)

Treasury holdings increased $​9.​3 billion (​2.​3%) to $​423.​8 billion, or 16.​2%, while Commercial Paper (​CP) jumped $​15.​5 billion (​4.​1%) to $​394.​5 billion, or 15.​1% of assets. Other holdings, primarily Time Deposits, soared $​107.​3 billion (​93.​1%) to $​222.​5 billion, or 8.​5% of assets. VRDNs held by taxable funds decreased by $​400 million (​2.​5%) to $​16.​3 billion (​0.​6% of assets).

Among Prime money funds, CDs represent just under one-​third of holdings at 30.​8% (​up from 30.​4% a month ago), followed by Commercial Paper at 24.​5% (​up from 23.​9%). The CP totals are primarily Financial Company CP (​13.​8% of total holdings), with Asset-​Backed CP making up 5.​9% and Other CP (​non-​financial) making up 4.​8%. Prime funds also hold 11.​7% in Agencies (​up from 10.​7%), 3.​7% in Treasury Debt (​unchanged), 5.​5% in Treasury Repo (​down from 13.​9%), 3.​8% in Other Instruments, 4.​9% in Other Instruments (​Time Deposits), and 5.​0% in Other Notes. Prime money fund holdings tracked by Crane Data total $​1.​614 trillion (​down from $​1.​588 trillion last month), or 61.​7% of taxable money fund holdings' total of $​2.​616 trillion.

Government fund portfolio assets totaled $​511 billion, up from $​471 billion in October, while Treasury money fund assets totaled $​491 billion, down from $​495 billion in October. Government money fund portfolios were made up of 51.​8% Agency Debt, 21.​7% Government Agency Repo, 5.​1% Treasury debt, and 20.​8% in Treasury Repo. Treasury money funds were comprised of 68.​8% Treasury debt, 29.​8% in Treasury Repo, and 1.​5% in Government agency, repo and investment company shares. Government and Treasury funds combined total $​1.​002 trillion, or 38.​3% of all taxable money fund assets.

European-​affiliated holdings rocketed $​240.​5 billion in October to $​713.​2 billion among all taxable funds (​and including repos); their share of holdings decreased to 27.​3% from 18.​5% the previous month. Eurozone-​affiliated holdings spiked $​132.​7 billion to $​400.​6 billion in October; they now account for 15.​3% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $​20.​4 billion to $​302.​6 billion (​11.​6% of the total). Americas related holdings decreased $​196.​0 billion to $​1.​597 trillion, and now represent 61.​0% of holdings.

The overall taxable fund Repo totals were made up of: Treasury Repurchase Agreements, which was down $​137.​9 billion, or 28.​8%, to $​341.​3 billion, or 13.​0% of assets, Government Agency Repurchase Agreements (​up $​21.​3 billion to $​191.​8 billion, or 7.​3% of total holdings), and Other Repurchase Agreements ($​75.​5 billion, or 2.​9% of holdings, down $​3.​2 billion from last month). The Commercial Paper totals were comprised of Financial Company Commercial Paper (​up $​15.​4 billion to $​223.​0 billion, or 8.​5% of assets), Asset Backed Commercial Paper (​up $​2.​4 billion to $​94.​5 billion, or 3.​6%), and Other Commercial Paper (​down $​2.​3 billion to $​77.​0 billion, or 2.​9%).

The 20 largest Issuers to taxable money market funds as of Oct. 31, 2015, include: the US Treasury ($​423.​8 billion, or 16.​2%), Federal Home Loan Bank ($​301.​8B, 11.​5%), Federal Reserve Bank of New York ($​174.​5B, 6.​7%), Wells Fargo ($​81.​9B, 3.​1%), Credit Agricole ($​78.​5B, 3.​0%), BNP Paribas ($​74.​5B, 2.​8%), Bank of Tokyo-​Mitsubishi UFJ Ltd ($​67.​1B, 2.​6%), JP Morgan ($​59.​5B, 2.​3%), Federal Home Loan Mortgage Co. ($​56.​9B, 2.​2%), RBC ($​56.​4B, 2.​2%), Credit Suisse ($​55.​5B, 2.​1%), Bank of America ($​52.​2B, 2.​0%), Bank of Nova Scotia ($​52.​0B, 2.​0%), Federal Farm Credit Bank ($​47.​3B, 1.​8%), DnB NOR Bank USA ($​45.​3B, 1.​7%), Federal National Mortgage Association ($​43.​9B, 1.​7%), Societe Generale ($​43.​8B, 1.​7%), Sumitomo Mitsui Banking Co ($​43.​6B, 1.​7%), Toronto-​Dominion Bank ($​41.​5B, 1.​6%), and Natixis ($​41.​0B, 1.​6%).

In the repo space, the Federal Reserve Bank of New York'​s RPP program issuance (​held by MMFs) remained the largest repo program with $​173.​8B, or 28.​6% of money fund repo. The 10 largest Fed Repo positions among MMFs on 10/​31 include: Vanguard Prime MMkt Fund ($​12.​1B), Wells Fargo Adv Govt MMkt ($​11.​4B), Fidelity Cash Central ($​9.​3B), JP Morgan US Govt ($​8.​8B), State Street Inst Lq Res ($​8.​0B), Goldman Sachs FS Fed ($​7.​8B), UBS Select Treas ($​7.​0B), Vanguard Market Liquidity ($​6.​9B), Franklin IFT MMP ($​6.​2B), and First American Govt Oblg ($​5.​4B).

The 10 largest Repo issuers (​dealers) (​with the amount of repo outstanding and market share among the money funds we track) include: Federal Reserve Bank of New York ($​173.​8B, 28.​6%), Wells Fargo ($​49.​1B, 8.​1%), BNP Paribas ($​45.​8B, 7.​5%), Credit Suisse ($​41.​7B, 6.​9%), Bank of America ($​40.​4B, 6.​6%), Societe Generale ($​34.​8B, 5.​7%), Credit Agricole ($​30.​9B, 5.​1%), JP Morgan ($​28.​1B, 4.​6%), Citi ($​20.​6B, 3.​4%), and RBC ($​18.​3B, 3.​0%).

The 10 largest issuers of "​credit" -- CDs, CP and Other securities (​including Time Deposits and Notes) combined -- include: Bank of Tokyo-​Mitsubishi UFJ Ltd ($​54.​6B, 5.​5%), Credit Agricole ($​47.​5B, 4.​8%), DnB NOR Bank ASA ($​45.​3B, 4.​6%), Sumitomo Mitsui Banking Co ($​43.​6B, 4.​4%), RBC ($​38.​1B, 3.​8%), Bank of Nova Scotia ($​35.​5B, 3.​6%), Skandinaviska Enskilda Banken AB ($​33.​9B, 3.​4%), Wells Fargo ($​32.​9B, 3.​3%), JP Morgan ($​31.​4B, 3.​2%), and Natixis ($​31.​2B, 3.​1%).

The 10 largest CD issuers include: Bank of Tokyo-​Mitsubishi UFJ Ltd ($​41.​6B, 8.​4%), Sumitomo Mitsui Banking Co ($​35.​0B, 7.​1%), Toronto-​Dominion Bank ($​29.​0B, 5.​9%), Wells Fargo ($​26.​4B, 5.​4%), Bank of Montreal ($​25.​4B, 5.​1%), Bank of Nova Scotia ($​23.​6B, 4.​8%), RBC ($​21.​3B, 4.​3%), Mizuho Corporate Bank Ltd ($​19.​8B, 4.​0%), Sumitomo Mitsui Trust Bank ($​17.​5B, 3.​6%), and Credit Agricole ($​17.​2B, 3.​5%).

The 10 largest CP issuers (​we include affiliated ABCP programs) include: JP Morgan ($​24.​2B, 7.​3%), Commonwealth Bank of Australia ($​19.​0B, 5.​7%), BNP Paribas ($​17.​5B, 5.​3%), Westpac Banking Co ($​17.​0B, 5.​1%), RBC ($​13.​7B, 4.​1%), Bank of Tokyo-​Mitsubishi UFJ Ltd ($​11.​6B, 3.​5%), HSBC ($​11.​0B, 3.​3%), Bank of Nova Scotia ($​10.​9B, 3.​3%), Credit Agricole ($​10.​7B, 3.​2%), and Australia & New Zealand Banking Group Ltd ($​10.​7B, 3.​2%).

The largest increases among Issuers include: Credit Agricole (​up $​44.​4B to $​78.​5B), Federal Home Loan Bank (​up $​28.​4B to $​301.​8B), Societe Generale (​up $​25.​5B to $​43.​8B), Credit Suisse (​up $​21.​0B to $​55.​0B), Credit Mutuel (​up $​19.​7B to $​26.​5B), BNP Paribas (​up $​18.​0B to $​74.​5B), Skandinaviska Enskilda Bank (​up $​16.​8B to $​33.​9B), Natixis (​up $​14.​5B to $​41.​0B), Barclays PLC (​up $​14.​4B to $​25.​2B), and Wells Fargo (​up $​13.​3B to $​81.​9B).

The largest decreases among Issuers of money market securities (​including Repo) in October were shown by: Federal Reserve Bank of New York (​down $​224.​7B to $​174.​5B), Bank of Montreal (​down $​9.​7B to $​30.​1B), Toronto-​Dominion Bank (​down $​4.​8B to $​41.​5B), Canadian Imperial Bank of Commerce (​down $​3.​4B to $​19.​2B), Sumitomo Mitsui Banking Co. (​down $​2.​2B to $​43.​6B), HSBC (​down $​2.​0B to $​29.​2B), Bank of Nova Scotia (​down $​1.​9B to $​52.​0B), State Street (​down $​1.​3B to $​13.​4B), FMS Wertmanagement (​down $​900M to $​7.​6B) and DZ Bank AG (​down $​700M to $​8.​0B).

The United States remained the largest segment of country-​affiliations; it represents 52.​6% of holdings, or $​1.​375 trillion (​down $​174.​8B). France jumped to second from fourth (​10.​6%, $​276.​9B), moving ahead of third place Canada (​8.​4%, $​219.​7B) and fourth place Japan (​7.​4%, $​194.​1B). Sweden (​4.​1%, $​106.​3B) remained in fifth, followed by the United Kingdom (​3.​4%, $​87.​9B) in sixth and Australia (​3.​2%, $​83.​4B) in seventh. Switzerland (​2.​7%, $​70.​7B), The Netherlands (​2.​5%, $​63.​9B), and Germany (​1.​8%, $​47.​3B) round out the top 10 among country affiliations. (​Note: Crane Data attributes Treasury and Government repo to the dealer'​s parent country of origin, though money funds themselves "​look-​through" and consider these U.​S. government securities. All money market securities must be U.​S. dollar-​denominated.)

As of October 31, 2015, Taxable money funds held 30.​7% (​up from 27.​4%) of their assets in securities maturing Overnight, and another 12.​9% maturing in 2-​7 days (​down from 16.​5%). Thus, 43.​6% in total matures in 1-​7 days. Another 20.​4% matures in 8-​30 days, while 10.​3% matures in 31-​60 days. Note that about three-​quarters, or 74.​3% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under the new pending SEC regulations. The next bucket, 61-​90 days, holds 12.​3% of taxable securities, while 11.​4% matures in 91-​180 days, and just 1.​9% matures beyond 180 days.

Crane Data'​s Taxable MF Portfolio Holdings (​and Money Fund Portfolio Laboratory) were updated Tuesday, and our MFI International "​offshore" Portfolio Holdings and Tax Exempt MF Holdings will be released late this week. Visit our Content center to download files or visit our Portfolio Laboratory to access our "​transparency" module. Contact us if you'​d like to see a sample of our latest Portfolio Holdings Reports.

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Charles Schwab Investment Management filed recently with the SEC to launch a new floating NAV money market fund, Schwab Variable Share Price Money Fund, which should go live in January 2016. Schwab recently outlined their money market fund plans in a letter to clients and shareholders (​see our Oct. 13 News, "Schwab Going All Retail, Converting Inst Shares; MMP Switches to Govt"). In that announcement, Schwab said it was converting its few Institutional share classes to Retail, making its current roster entirely "​Retail". The company said nothing about this new seemingly Institutional offering, though, and couldn'​t comment on the pending filing. In other news, Invesco sent out an update to clients late last week announcing plans for its MMF lineup. (​See their press release, "Invesco Announces Intended Changes to Money Market Funds.") The company details which funds will be Government, Retail, and Institutional and designated its $​17 billion Liquid Assets and STIC Prime funds as Institutional. It also announced that it will convert one fund -- the $​662 million Invesco VI Money Market Fund -- to a Government MMF.

Schwab'​s Variable NAV MF filing says under "Investment Objective," "The fund'​s goal is to seek current income consistent with stability of capital and liquidity." Its "Principal Investment Strategy" explains, "The fund is a money market fund that is designed to serve as a complementary product to traditional stable share price money market funds. Unlike a traditional stable share price money market fund, the fund will not use the amortized cost method of valuation or round the per share net asset value (​NAV) to the nearest whole cent and does not seek to maintain a stable share price. As a result, the fund'​s share price, which is its NAV, will vary and reflect the effects of unrealized appreciation and depreciation and realized losses and gains."

The filing continues, "​To pursue its goal, the fund invests in high-​quality short-​term money market investments issued by U.​S. and foreign issuers such as: commercial paper, including asset-​backed commercial paper; promissory notes; certificates of deposit and time deposits; variable- and floating-​rate debt securities; bank notes and bankers acceptances; repurchase agreements; and obligations that are issued by the U.​S. government, its agencies or instrumentalities, including obligations that are not guaranteed by the U.​S. Treasury, such as those issued by Fannie Mae and Freddie Mac (​U.​S. government securities)."

It adds that the fund has "Variable NAV Risk," explaining, "​The fund does not maintain a stable NAV per share [​though it will be priced at $​1.​00]. The value of the fund'​s shares will be calculated to four decimal places and will fluctuate with changes in the values of the fund'​s portfolio securities. You could lose money by investing in the fund." Further, it says, "On or after October 14, 2016 ... the fund is permitted to impose a liquidity fee or redemption gate during times of extraordinary market stress."

The Schwab Variable Share Price Money Fund will have 4 share classes -- Ultra (​SVUXX), Premier (​SVRXX), Select (​SVCXX), and Investor (​SVOXX). The Ultra class will have expenses of 0.​21% (​after expense reduction) and a minimum initial investment of $​10 million. The Premier share class has a fee of 0.​24% (​after reduction) and a minimum initial investment of $​3 million. The Select shares has a fee of 0.​35% (​after reduction) and a minimum initial investment of $​1 million, while the Investor shares has a fee of 0.​45% (​after reduction) and a minimum initial investment of $​25,​000 or $​15,​000 for an IRA of custodial accounts.

The filing explains, "The fund'​s Ultra Share Class has been established as a cash management vehicle for affiliated mutual funds. The Ultra Share Class is not available to other investors. The fund reserves the right to change the availability of the Ultra Share Class at any time without prior notice to shareholders. Because affiliated funds may invest in the fund, the fund may have large inflows and/​or outflows of cash from time to time, which could cause the fund to sell or purchase securities at times when it otherwise would not do so. This could cause the fund to incur transaction costs and may result in high taxes, which could affect performance."

Invesco'​s client update explains, "Invesco has been thoughtfully evaluating the impact this reform will have on our investors and our product line. Throughout this process, we have been listening to your questions and working through the concerns that you have articulated to ensure our products continue to meet your needs. In order to assist our investors in planning, and to help ease the transition into the new regulatory environment, here we outline our intentions for certain segments of our money market fund product line."

It says, "The following Invesco money market funds will operate consistent with the government money market fund classification: Government and Agency Portfolio, Government TaxAdvantage Portfolio, Invesco VI Money Market Fund, Premier US Government Money Portfolio, and Treasury Portfolio.... Invesco VI Money Market Fund, currently a prime money market fund, will change its name and investment strategy to qualify and operate as a government money market fund effective on or about April 29, 2016." The other government funds are already in full compliance with the new regulations that call for 99.​5% of the portfolio to be invested in government securities. Also, none of these government funds will adopt fees or gates.

Invesco also outlines its CNAV Retail funds, "The following Invesco money market funds will operate consistent with the CNAV retail money market fund classification: Invesco Tax-​Exempt Cash Fund and Tax-​Free Cash Reserve Portfolio. Invesco will provide additional details to the CNAV Retail money market fund shareholders regarding this change prior to the effective date."

Finally, they categorize the Floating NAV funds. "​The following Invesco money market funds will operate consistent with the FNAV money market fund classification: Liquid Assets Portfolio, Premier Tax-​Exempt Portfolio, and STIC Prime Portfolio. Invesco will provide additional details to the FNAV Retail money market fund shareholders regarding this change prior to the effective date."

The update adds, "​Invesco money market funds will be in compliance with the new regulations prior to the October 14, 2016 deadline.... The specific timing of changes will be determined and communicated in 2016 as final reform implementation takes shape.... Additionally, we will communicate plans for Invesco'​s other money market funds, the Invesco Money Market Fund and Premier Portfolio, not specifically mentioned in this letter, in the coming weeks."

Invesco concludes, "Our primary goal through our money market fund reform process is to provide our investors with a full suite of liquidity management solutions to meet their investing needs with the least amount of disruption while remaining focused on our disciplined investment process. For Invesco Global Liquidity, safety is of paramount importance in the investment process for all of our money market funds. Our conservative investment philosophy has always focused on providing safety, liquidity, and yield -- in that order -- to our money market fund investors. We'​re dedicated to the future of this industry -- and to yours."

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Online money market trading portal and financial software company Sungard released its 5th annual "Corporate Cash Investment Report," which "reveals significant challenges for treasurers due to regulatory report reforms" and which indicates that the majority of corporate investors will stick with Prime money market funds after reforms and keep investment levels similar." A press release says, "The study examines treasurers' changing attitudes toward cash investment over the last 12 months -- including strategic cash holdings, asset allocation, investment policies and transaction execution -- as well as identifying trends and developments over the last five years. Survey participants represented a cross-​section of geographic regions and industries, with 46 percent located in North America and 37 percent in Europe."

The report'​s "​key findings" include: "Corporate cash balances continue to rise strongly in 2015, observed by 45 percent of respondents. Twenty-​six percent of those that reported an increase in cash balances noted that these had increased by more than a third.... Investment challenges have evolved significantly over the past 12 months. Finding suitable repositories for corporate cash remains the top priority at 46 percent, but while Basel III barely registered a year ago, it is now a key priority for 43 percent of respondents. Money market fund (​MMF) reform and the problem of '​trapped' cash are also key issues facing many treasurers."

The survey also found that: "Treasurers have become more confident in segmenting their cash into short-​term, core and strategic cash, providing more choice of investment instruments with the potential to generate higher returns. Sixty percent of treasurers in the U.​S. anticipate that they will continue to invest in prime MMFs at a similar level once SEC reforms are implemented in 2016. Thirty-​seven percent expect to decrease their holdings, identifying accounting, intraday liquidity and investment policy constraints as the biggest obstacles."

SunGard'​s findings also include: "Treasurers expect to use term deposits (​19 percent), commercial paper (​15 percent) certificates of deposit (​13 percent) and government debt (​13 percent) either in addition to, or as a replacement for prime MMFs, although they anticipate using a wide range of instruments. Direct investment has resourcing and risk implications, however, which treasurers will need to address before expanding their investment portfolios. For the first time since we launched the study in 2011, use of independent portals has overtaken other dealing methods for short-​term cash instruments, including telephone (​38 percent) and proprietary portals (​21 percent)."

On money market funds, it says, "As this study has demonstrated over the past five years, bank deposits and MMFs are treasurers' most popular choices for investing surplus cash. MMFs remain more common in the U.​S. and Europe than in other regions, but the use of MMFs in Asia is also growing.... However, the next 12 months will bring major changes to both deposits and MMFs, compelling treasurers to review their investment policies and processes, and in some cases change the way they invest surplus cash ."

SunGard'​s survey explains, "​By August 2016, new SEC reforms will take effect, which require a floating net asset value (​NAV) for institutional prime money market funds in the U.​S., so daily share prices of these funds will fluctuate, as will the market-​based value of fund assets. In addition, MMF boards will have new tools, such as the ability to impose liquidity fees and redemption gates to prevent or limit runs.... These changes, particularly the need to maintain a floating NAV, have valuation, accounting, and operational implications for fund managers, and will therefore have a profound impact on the MMF industry.... Given that there are less than 12 months until the implementation deadline for these reforms, treasurers will need to act now to ensure that their investment policies, accounting methodologies and systems are ready to adapt."

It continues, "Among those that currently invest in prime MMFs in the U.​S., the majority (​60 percent) anticipate that they will continue to invest in these funds at a similar level to today, although 37 percent anticipate decreasing the level of investment. Accounting considerations (​43 percent), intraday limit concerns (​30 percent) and the need to revise investment policies (​26 percent) were cited as the most important reasons for this. However, as treasurers become more familiar with new instruments and make the necessary revisions to their policies and processes, treasurers' anticipated reduction in their use of MMFs may not materialize in practice."

The Corporate Cash Investment Report continues, "Government funds are excluded from the requirement to have a floating NAV and given low yields generally, we may see a shift towards these funds, at least in the short term . This appears to be the expectation of many respondents to this study, but the potential to generate additional yield on prime MMFs compared with government funds as interest rates rise in the future may be an incentive to address some of the internal issues and return to prime MMFs. Forty-​two percent of respondents indicated that the uplift in rates would need to be only 21-​34 bps to justify returning to prime MMFs, although the remaining 58 percent would be looking for an additional yield delta of above 35 bps. In addition, many respondents anticipate diversifying their cash investment portfolio across a wider range of instruments. Treasurers are currently most attracted to term deposits (​19 percent), commercial paper (​CP, 15 percent) certificates of deposit (​CD, 13 percent) and government debt (​13 percent)."

Further, it says, "However, the future interest rate environment, availability of assets and treasurers' ability to segment cash will have an impact on these plans. Furthermore, treasurers will need to consider the resource implications of managing their cash assets directly, such as when investing in CP, CDs and repos, as opposed to outsourcing this to a fund manager. Treasurers choosing some of these direct investments will also lose the inherent diversification associated with the use of funds, whether MMFs, bond funds or separately managed accounts."

SunGard concludes, "As our survey results illustrate, regulatory change, both MMF reforms and the wider implications of Basel III, marks the most important change we have seen in the cash investment space since the global financial crisis. With an unprecedented period of low interest rates, which are now in negative territory in Europe, the value of surplus cash has been negligible over recent years. Even though it seems likely that the Fed will increase USD rates, interest rates across major currencies are likely to remain at very low levels for the foreseeable future."

They explain, "Added to this, with the most common investment choices, namely bank deposits and MMFs under threat, treasurers are now being forced to question why they are holding such large, growing cash balances.... Basel III will limit banks' appetite for some types of deposits, which will necessarily prompt treasurers to seek alternatives. Many treasurers are also concerned about the shift from constant NAV to variable NAV MMFs, and in some cases, their existing policies and systems do not accommodate these funds. However, this is likely to be a short-​term issue rather than prompt a long-​term change of corporate behavior. Treasurers value the inherent diversification, credit quality, rigorous criteria and same-​day access to liquidity that MMFs offer, and they will continue to offer these benefits post-​reform.... Even so, the combination of Basel III and MMF reform are likely to prove a catalyst for treasurers to review their cash investment policy."

Vince Tolve, executive vice president, SunGard'​s global trading business, comments, "​Cash investment challenges have evolved significantly over the past five years, with a shift from operational to more strategic concerns as interest rates remain low and regulatory reform takes center stage. As banks encourage investors to move depositors off their balance sheets as a result of Basel III, turning to an alternative bank is becoming increasingly difficult as credit rating downgrades have reduced their choices of counterparty banks. In addition, MMF reform in the U.​S. means that investors will need to consider the impact of constant NAV instruments on their investment policy, reporting and accounting processes. Going forward, treasurers should take three key steps: (​1) understand the implications of regulatory change on their business, (​2) review their policies and processes for consistency with regulations and consider revising them to permit investment in a wider range of instruments, and (​3) make sure their systems and processes support the full range of instruments permitted within their policy."

​

The November issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "MF Consolidation Accelerates; Govt Fund Conversions Begin," which looks at Prime to Government fund conversions, consolidation, and Schwab and Fidelity'​s declaration of "​retail" funds; "Prior Speaks on Changes; New Reality at Fidelity," where we summarize recent comments from Fidelity'​s Nancy Prior and changes to the firm'​s funds; and "BlackRock Buys BofA MMFs in Biggest Deal of Decade," which recaps the news that BlackRock acquired BofA'​s $​87 billion money fund business. We have also updated our Money Fund Wisdom database query system with Oct. 31, 2015, performance statistics, and sent out our MFI XLS spreadsheet earlier. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our November Money Fund Portfolio Holdings are scheduled to ship Tuesday, November 10, and our November Bond Fund Intelligence is scheduled to go out Monday, November 16.

MFI'​s lead "Consolidation" article says, "Acquisitions, liquidations, and conversions headlined a busy month in the money market fund space. With now less than a year until MMF reforms take effect, some Prime funds have already begun converting into Government funds. The first batch of these took place this week, and more are slated to convert in December and throughout 2016. To date, over $​230 billion in Prime money funds have converted or declared their intent to convert into Government funds, with over $​40 billion converting this week and next. On the acquisition front, BlackRock shook the money fund world with its purchase of BofA'​s cash management business, and a steady stream of minor fund liquidations, conversions and announcements continued."

The piece continues, "In October, two small Prime money market funds announced conversions to Government, and two more firms announced their exits from the money market space. Nationwide will convert its $​1.​0 billion Nationwide Money Market Fund and its $​1.​8 billion Nationwide VIT MMF to Government funds on 10/​14/​16. Also, Pioneer is converting its $​280 million Pioneer Cash Reserves from Prime to Government on 11/​13/​15. Further, William Blair filed to liquidate its $​1.​4 billion Ready Reserves Fund on Nov. 18, and Delaware filed to convert its $​169 million Delaware Cash Reserves to Delaware Ultrashort [​Bond] Fund in Jan. 2016."

Our latest MFI "​profile," reads, "Fidelity President of Fixed Income Nancy Prior spoke recently about the state of the money market fund industry in a speech at the AFP Annual Conference entitled, "Money Market Funds: The New Reality." She discussed Fidelity'​s second phase of changes to its money market fund lineup, which were announced October 14, and also talked about the size of the Government securities sector, conservative ultra-​short bond funds and the fact that there is no "​silver bullet" for corporate cash investors."

It adds, "The big news in the recent announcement, which followed the late January shocker that Fidelity Cash Reserves will "​go government," is that Fidelity will convert both its $​65.​5 billion Fidelity Institutional Money Market Portfolio and its $​2.​2 billion FIMM Tax Exempt Portfolio into Retail funds. Fidelity will retain just one Prime Institutional fund, the $​47.​8 billion FIMM Prime Money Market Portfolio."

We quote Prior, "In the end, MMFs survived a very long and difficult regulatory process, and will continue to exist in a form we all recognize. That survival was not a given through a series of ups and downs of a regulatory process that lasted more than five years. One result of the regulation, however, is that the current value proposition of prime MMFs -- stability, liquidity, and a competitive market yield -- has been diminished. In fact, investors will no longer be able to maximize all three with any single MMF product. There will be tradeoffs between the different types of funds, and investors will have to choose which features are most important to them. For many of you here, prime MMFs have traditionally been a great cash investment option. They met your needs by providing all three elements -- stability, liquidity, and a competitive yield."

The "BlackRock Buys BofA" article says, "In one of the largest acquisitions ever in the money market fund space, BlackRock announced that it was taking over management of BofA Global Capital'​s cash business. BofA Funds is the 14th largest manager of money market fund assets that we track with $​48.​3 billion -- and according to BlackRock'​s press release announcing the move, has $​87 billion in total cash assets under management. Prior to this transaction, the largest money fund mergers in the past included both BlackRock'​s merger with Merrill Lynch Investment Management in 2006 and BlackRock'​s merger with Barclays Global Investors in 2009. (​See our Dec. 2, 2009 News, "Merged BlackRock, BGI Form World'​s 3rd Largest Money Fund Manager.") When the BofA transaction is complete, BlackRock will become the second largest manager of money fund assets with about $​370 billion in AUM, jumping ahead of now No. 2-​ranked JP Morgan."

We also look at how money fund managers are reducing fee waivers in the sidebar, "Fee Waivers Being Reduced." It says, "As yields creep up and a possible interest rate hike looms, money fund managers are beginning to reduce the amount of fee waivers. In Q3 earnings calls and releases, Federated, Schwab, Northern Trust and T. Rowe Price all reported lower fee waivers and higher MMF revenue. And, we take our quarterly look at the largest money fund markets in the world in our story, "Global MMF Data Shows: Big Jumps in Ireland and China." It says, "The Investment Company Institute'​s latest "​Worldwide Mutual Fund Assets and Flows" show that global money market mutual fund assets increased in the 2nd Quarter of 2015, rising $​31 billion, or 0.​7%, to $​4.​580 trillion. Ireland solidified its spot as the second largest MMF market with a big jump, while China and Luxembourg also gained assets in Q2. Globally, MMF assets increased by $​107.​5 billion, or 2.​2%, over the past year (​through 6/​30/​15)."

Our November MFI XLS, with Oct. 31, 2015, data, shows total assets increasing $​56.​5 billion in October after declining by $​9.​4 billion in September, rising $​7.​2 billion in August, and jumping $​52.​4 billion in July. YTD, MMF assets are down by just $​8.​2 billion, or 0.​3% (​through 10/​31/​15). Our broad Crane Money Fund Average 7-​Day Yield and 30-​Day Yield remained at 0.​02%, while our Crane 100 Money Fund Index (​the 100 largest taxable funds) went up a basis point to 0.​05% (​7-​day).

On a Gross Yield Basis (​before expenses were taken out), funds averaged 0.​18% (​Crane MFA, up one bps) and 0.​21% (​Crane 100, unchanged). Charged Expenses averaged 0.​15% (​unchanged) and 0.​17% (​up one bps) for the two main taxable averages. The average WAMs (​weighted average maturities) for the Crane MFA was 36 days (​up two days from last month) and for the Crane 100 was 36 days (​unchanged). (​See our Crane Index or craneindexes.​xlsx history file for more on our averages.)

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Congress raised the debt ceiling early this week, which opened the door for the Treasury to increase the issuance of Treasury bills through the end of the calendar year, anticipating large demand from Prime funds converting to Government funds. The minutes from the Nov. 3 meeting of the "Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association," say, "​Deputy Assistant Secretary Clark began by noting that Treasury has started to return Treasury'​s cash balance to a level generally sufficient to cover one week of outflows subject to a minimum balance of roughly $​150 billion. DAS Clark explained that increasing the size of bill auctions would help to accomplish this goal and that Treasury forecasts a $​147 billion net increase in bill issuance during the first quarter of FY 2016. He noted that Treasury bill auctions would likely remain at elevated levels through the end of the calendar year." We review the Treasury'​s plans for bill issuance and the start of the migration of Prime funds to Government money funds below.

The minutes continue, "Additionally, DAS Clark reiterated Treasury'​s commitment to increasing the supply of bills outstanding over the coming fiscal year. He noted that Treasury would only need to increase net issuance by $​68 billion in FY2016 if coupon auction sizes remained constant and if the Federal Reserve chose to fully reinvest its maturing Treasury securities. Thus, DAS Clark highlighted that adjustments to Treasury'​s coupon auction sizes may prove necessary to support a meaningful increase in the supply of bills over that same timeframe. DAS Clark noted that significant reductions to bill auction sizes over the last fiscal quarter, in response to the debt limit constraints, had resulted in a corresponding rise in bid-​to-​cover (​BTC) ratios for those securities. Specifically, he observed that BTC ratios for the four-​week bill auction reached a historical high."

The TBAC minutes go on, "​Next, Acting Assistant Secretary Seth Carpenter delivered a presentation to the Committee on the potential benefits and drawbacks of issuing a two-​month Treasury bill maturity.... Carpenter noted that market participants generally agree that demand for Treasury bills will continue to increase as some large prime money market mutual funds convert to government-​only money market mutual funds (​MMFs). Additionally, changes to the way that some large banks classify certain types of deposits may also lead to increased demand for short-​term high quality government assets."

They continue, "​He also noted that many market participants view bills as a close substitute to repo; thus, declines in dealer repo capacity may also increase the demand for bills. Carpenter explained that government-​only MMF data from January 2012 to July 2015, excluding FRNs, indicate that 40 percent of these funds' Treasury holdings mature within one month, while 76 percent of their Treasury holdings mature within three months. Carpenter also noted that these same data indicate that the WAM of these funds' Treasury holdings has oscillated between 60 and 80 days. Accordingly, these data indicate that MMFs have a need for short-​dated Treasury issuance."

The minutes add, "Carpenter highlighted Treasury'​s analysis that showed the potential benefits of a two-​month bill maturity. Specifically, he noted that, by as early as 2017, the average one- and three-​month auction sizes could exceed the maximum auction sizes recommended in the most recent primary dealer auction survey. Carpenter showed how the addition of a two-​month bill would help Treasury increase bill issuance without increasing auction sizes beyond the primary dealer recommended maximums. The Committee engaged in a detailed discussion regarding the potential addition of another bill maturity and most members agreed that there would be benefits given the demand for bills, particularly from the MMF community."

They continue, "​While some members agreed that a two-​month bill would be a good addition to Treasury'​s existing suite of maturities, some members noted that a shorter-​dated maturity, such as a two-​week bill, may be better suited for MMFs that need short-​term assets as a substitute for declining repo capacity by the dealer community. One member cited the potential for a cleared repo facility as one way that market participants' demand for repo could be met and that the likelihood of such a facility should be considered when determining the maturity of a new Treasury bill. The Committee concluded that Treasury staff should engage with market participants about a new bill maturity and prepare a follow-​up presentation for the Committee at a future meeting."

In a November 3, "Report to the Secretary of the Treasury," TBAC Chairman Dana Emery writes, "Treasury, due to the debt ceiling, is currently operating below the recommended $​150 billion minimum daily cash balance that was established in May 2015. Treasury plans to increase Tbill issuance significantly, by increasing the size of the 4-​week, 3-​month and 6-​month auctions and through cash management bill issuance. Based on the current auction schedule, Treasury is projected to increase new bill issuance by $​186 billion by the end of December 2015 and to increase its forecasted end-​of-​quarter cash balance to $​344 billion. Given the high demand for Tbills due to money market reform and regulatory changes, the Committee believes increased Tbill issuance will both enhance market functioning and help the Treasury achieve low cost funding."

Emery adds, "The Committee discussed the benefits of increased Tbill issuance to enhance short-​term market functioning, recommending an increase above the projected shortfall. Therefore, the Committee recommended that the Treasury consider a moderate reduction in coupon issuance in coming quarters, assuming revenues and outlays remain as projected. As a follow-​up to the Committee'​s May request and in light of the expected shift of assets from prime to Treasury money market funds, Treasury provided an initial assessment of potential introduction of 2- month bills to distribute Tbill issuance across more maturities and to address increased projected demand for Tbills due to market structure changes and money market reform.... The Committee agreed that the 2-​month Tbill was worth exploring further, particularly with money market fund managers. One member noted that money market demand has displayed seasonal patterns and that demand may be more centered in maturities of one month and shorter."

The supply increase is in the nick of time, as we are now starting to see a sizeable migration from Prime to Government in our data. We'​ve seen the shift in portfolio holdings as prime funds prepare to "​go Government" but we'​re about to see it in the reclassification of funds from Prime to Government. Our most recent MMF portfolio holdings data shows that Government Agency Debt increased $​34.​5B in September to $​418 billion, making it the third largest portfolio segment behind Repos and CDs. (​Almost half of the gains, $​16.​7 billion, were due to the ongoing conversion of the $​115 billion Fidelity Cash Reserves from Prime to Government.) Money market funds currently hold over $​415 billion in Treasury bills and securities, representing 16.​2% of taxable holdings.

But this week (​and month), we'​ll see the first big wave of Prime assets become Government fund assets. Franklin funds completed the conversion of about $​22 billion in assets from 3 Prime funds into Government funds. The $​21.​7 billion Franklin Inst Fiduciary Trust Money Market Portfolio, the $​1.​8 billion Franklin Money Fund, and the $​344 million Franklin Templeton Money Fund will be changed in our November MFI XLS, which ships Friday. (​These funds are now Franklin IFT US Government MMP, Franklin US Govt Money Fund, and Franklin Templeton US Govt Money Fund.) Also, in mid-​November, the $​15.​7 billion Fidelity Cash Management Prime Fund will be merged into Fidelity Govt MMF, and the $​280 million Pioneer Cash Reserves Fund is scheduled to complete its conversion to Pioneer US Govt MMF.

Then on Dec. 1, several Fidelity Prime funds, with assets totaling about $​143.​7 billion, are due to complete the conversion to Government funds. These funds are the $​115.​1 billion Fidelity Cash Reserves (​changing to Fidelity US Govt Cash Reserves), the $​11.​9 billion Fidelity MMT Retirement MM Portfolio (​changing to Retirement Govt MM Portfolio II), and the $​277 million Fidelity VIP Money Market Fund (​changing to Fidelity VIP Govt MM). Also in December, American Century will complete the conversion of its $​1.​4 billion American Century Premium MMF to the American Century US Govt MMF.

​

With the first Prime to Government fund conversions taking place this week (​Franklin'​s money funds changed on Monday), and shifting into high gear next month when Fidelity Cash Reserves converts, we found JP Morgan'​s Securities' latest "Short Term Market Outlook and Strategy" most interesting. It takes a deep dive into these conversions. As we pointed out in our Oct. 29 News, "Pioneer, Nationwide Converting Prime to Govt; 2 More Exit MMF Space," approximately $​232 billion in Prime funds are slated to switch to Government. JPM strategists say that ultimately, when investors flows are added onto these moves, the shift away from Prime could reach $​600B to $​650 billion. (​For information on when and which conversions are taking place, see our next Money Fund Intelligence newsletter, which comes out Friday morning.) In other news, we also review a commentary, "Floating NAVs: The Impacts of the SEC'​s Adoption of MMF Reforms on Shareholder Servicing," from BNY Mellon Asset Servicing VP Charles Hawkins.

The "Prime to Govie" commentary by JPM Securities' `​Alex Roever, John Iborg, and Teresa Ho, says, "Since Fidelity'​s initial announcement that it would convert the majority of its prime MMF into government MMF this year, several money fund complexes have followed suit in coming forward with their own strategies for dealing with impending MMF reforms. Both large and small complexes have released at least some outline for their plans, and strategies have varied. Due to the increased cost of doing business, several small funds have either been driven to merge with larger complexes, or have decided to leave the MMF business all together. Larger complexes have deliberated differing approaches, including offering 60-​day or 7-​day max-​maturity funds, offering 2a7 alternatives such as short-​term bond/​enhanced cash funds, or deciding to convert at least a portion of their prime MMFs to government status. By far, the most impactful changes made by the MMF industry have been prime to government fund conversion plans."

They continue, "To date, $​235bn or 16% of total prime fund AuM has been scheduled for conversion into government status. Regarding these conversions, we have received two frequently asked questions from our clients: 1) what will be the timing of these conversions? and 2) will the conversions have any meaningful impact on short-​term credit and government rates as they occur? In short, we expect the remaining conversion process to be fairly orderly."

JPM explains, "To summarize, of the $​235bn of AuM scheduled for conversion, $​125bn or 53% is already invested in government MMF eligible assets. This leaves $​110bn of credit product, mostly bank debt, which will eventually need to roll off as each fund'​s final conversion takes place. Additionally, according to each fund'​s SEC filings, the timing of most final conversions will occur around the end of 2015. That said, any resulting pressure that may arise in the short-​term credit or rates markets would likely be felt the most during December."

Further, they write, "​The next step of the exodus in assets away from the prime fund universe could be via investor outflows. With no sizable outflows experienced YTD, it is very possible that sizable outflows do not occur until the middle of next year as the final rules draw near. Prime institutional shareholders have a track record of being very deliberate and herd-​like in shifting their cash. Indeed, flows in this investor base have not tended to be large unless prompted by some significant catalyst such as 2008 or the Eurozone crisis during 2011. Additionally, with short-​term operational deposits under pressure at large banks and a Fed liftoff likely to result in higher fund yields, investors will have an increased incentive to stay in prime institutional funds as long as possible."

JPM'​s piece concludes, "​All things considered, we still anticipate sizable investor outflows to eventually take place. With fund conversions and investor outflows combined, we now believe that the shift in assets away from prime MMFs could be as large as $​600-$​650bn. Having already discussed the implications of fund conversions on Libor, investor outflows may prove to be more impactful. Because investor driven outflows are unpredictable, prime fund managers will likely favor short maturities to prepare for a possible liquidation sale, pressuring rates higher and the curve steeper."

The BNY Mellon article, which originally appeared in the Securities Transfer Association'​s STA Newsletter is the third in a 3-​part series. The first, published in January, "A Whole New World," examined shareholder servicing issues related to Retail Fund Eligibility, while the second, which ran in April, was on "Liquidity Fees and Redemption Gates." Part 3, which we review below, focuses on "Floating Net Asset Values." In the overview, it says, "From a shareholder servicing perspective, four reforms in particular will require money market fund transfer agents, and intermediaries, to design and implement solutions that involve enhancing systems and modifying operations processes. These reforms are: (​1) Retail fund investor eligibility; (​2) Liquidation fees; (​3) Redemption gates; and (​4) "​Floating" net asset values ("​NAVs")."

The piece on the Floating NAV requirement looks at a number of issues, including same day settlement. It says, "Traditional institutional money market funds provide same-​day settlement for purchases and redemptions, where shareholder purchases and redemptions are settled by fed wire at intervals (​sometimes as often as hourly) on trade date. Currently, the ability to achieve same-​day settlement has been predicated on the predictability that the NAV will remain at a constant $​1 per share. In order to facilitate intraday settlement, the SEC anticipates that funds will adopt procedures and controls that support the accounting systems to be able to calculate a floating NAV periodically each business day and to communicate that value to others in the distribution chain. These NAVs will be used by transfer agents and intermediaries each time the fund closes to price transactions and transmit redemption proceeds to shareholders. The frequency and intervals of these closes are not prescribed by the SEC, and are being driven by market forces."

BNY'​s Hawkins adds, "For transfer agents, the need to support multiple NAVs per day will require significant enhancements to facilitate the squeezing of a full day of operations and processing into multiple cycles per day. Most transfer agent recordkeeping and ancillary systems are designed to support only one NAV per day, and most transfer agent operations are set up to process, reconcile, and report activity to the fund once per day. In order to make the changes necessary to support multiple NAVs per day, new operating models are being developed that orchestrate the processes for pricing services, portfolio managers, fund accountants, transfer agents, and even the shareholders that hold fund shares directly or through an intermediary."

On broker-​dealer sweep program, it says, "Just as the predictability of a $​1 per share NAV is important for traditional institutional money market funds, so too is this predictability crucial for broker-​dealers that provide cash sweep programs to their customers. These cash sweep programs typically conduct an overnight batch process that recognizes the cash credits and debits that occur in their customer'​s account throughout the day. Excess cash that remains in the customer'​s account is "​swept" into the money market fund as a purchase, and if there is a negative cash position in the brokerage account, money is swept out of the money market fund as a redemption."

The BNY update continues, "In order to operate as designed, the brokerage sweep system needs to "​know" that the NAV in the money market fund will be $​1, so that the system will be able to compute the money market fund transaction necessary to sweep cash into or out of the brokerage account. Faced with this new money market fund floating NAV environment, many broker-​dealers are considering redirecting their sweep programs away from non-​government money market funds to government money market funds or other financial products. Consequently, it is likely that some non-​government money market funds will lose significant assets, causing their sponsors to contemplate changes to their fund product line-​ups."

Finally, it says, "Certain investors, such as partnerships or investment clubs, are defined by these new rules as being institutional investors, because the money market fund shares are not beneficially owned by natural persons. However, they neither want nor need intraday settlement using fed wires. Because these hybrid shareholders will not be eligible to remain in the retail money market fund they own today, they will likely to be forced to liquidate or voluntarily exchange their assets to a government money market fund or other financial product that will accept them."

​

In one of the largest acquisitions ever in the money market fund space, BlackRock announced that it was taking over management of BofA Global Capital'​s cash business. BofA Funds is the 14th largest manager of money market fund assets that we track with $​48.​3 billion -- and according to BlackRock'​s press release announcing the move, has $​87 billion in total cash assets under management. Prior to this transaction, the largest money fund mergers in the past included both BlackRock'​s merger with Merrill Lynch Investment Management in 2006 and BlackRock'​s merger with Barclays Global Investors in 2009. (​See our Dec. 2, 2009 News, "Merged BlackRock, BGI Form World'​s 3rd Largest Money Fund Manager.") When the BofA transaction is complete, BlackRock will become the second largest manager of money fund assets with about $​370 billion in AUM, jumping ahead of now No. 2-​ranked JP Morgan.

The press release, entitled, "BlackRock'​s Cash Management Platform to Grow to Over $​370 billion of AUM through Transaction with Bank of America'​s BofA Global Capital Management'​s Asset Management Business," says, "BlackRock, Inc. and Bank of America'​s asset management business, BofA Global Capital Management have entered an agreement to transfer investment management responsibilities of approximately $​87 billion of AUM currently managed by BofA Global Capital Management to BlackRock. Through BofA, clients currently have access to a suite of taxable and tax-​exempt money market funds; a U.​S. dollar offshore fund; and customized separate account strategies."

It explains, "​The transaction will combine BlackRock'​s global cash management expertise and product suite with the strength of BofA Global Capital Management'​s client relationships, resulting in a platform of high quality, global liquidity investment solutions accessible to a broader spectrum of clients. Upon closing, BlackRock'​s global cash management platform is expected grow to approximately $​372 billion in assets under management, based on current asset levels. BlackRock will continue to enjoy a strong distribution partnership with Bank of America and will have expanded access to several broad distribution channels."

Tom Callahan, BlackRock'​s Co-​head of global cash management, comments, "Expanding our partnership with Bank of America presents a tremendous growth opportunity for BlackRock'​s cash management business. This partnership allows us to further leverage our global scale, comprehensive product suite and best in class risk management capabilities to serve a new universe of clients.... At a time of tremendous change in the cash management industry, this alliance underscores BlackRock'​s commitment to market leadership in delivering outstanding liquidity solutions to our clients."

Rich Hoerner, also BlackRock Co-​head of global cash management, says, "​BlackRock and existing BofA Global Capital Management clients will benefit from a combined platform with greater scale and global reach. Additional scale will better enable BlackRock to continue to manage client balances of various sizes and investment time horizons."

BofA Global Capital Management President Michael Pelzar adds, "​BlackRock is a best-​in-​class liquidity solutions provider with a demonstrated ability to deliver on clients' needs for liquidity and yield. Our selection of BlackRock was made after careful consideration of our clients' needs, our long-​standing relationship with BlackRock, and their demonstrated ability to provide a comprehensive range of global liquidity management solutions."

The release adds, "Both BlackRock and BofA Global Capital Management are fully committed to continuing excellent service for BofA Global Capital Management'​s cash management clients and will work in partnership to ensure a seamless transition. The transaction is expected to close in the first half of 2016 and is subject to fund boards, BofA Global Capital Management'​s fund shareholders and regulatory approvals. The financial impact of the transaction is not material to BlackRock earnings. Terms were not disclosed."

Callahan explained in an interview with Crane Data'​s Peter Crane, "​I think you understand the economics and the dynamics facing the cash management [​space] better than anyone.... This transaction extends from a longstanding very strong relationship between BlackRock and Bank of America that goes back to the MLIM merger.... With the dynamics that are currently facing the cash industry through regulatory reform, it'​s an environment where scale matters -- scale in terms of leveraging infrastructure in a highly regulated industry that is faced with rising costs due to money fund compliance, scale in terms of the industry competing for a rapidly shrinking pool of money fund market supply and rapidly contracting repo lines, and scale in terms of having the size and diversity in our funds to facilitate the large liquidity needs of our clients."

He added, "Many in the market have forecasted that there would be consolidation in a meaningful way as a result of money fund reform, and that'​s exactly where we are. We'​re incredibly excited about this transaction. It puts us in partnership with one of the largest premier global banks. [​With] the specter of Basel III looming and many banks needing to move large blocks of cash off their balance sheets, being closely aligned with Bank of America puts us in an incredibly strong position. From the client'​s perspective, this gives both Bank of America and BlackRock Cash clients access to an industry-​leading global product suite.... In a business where scale is vital... it just makes our funds that much larger and more diversified, which gives us greater capacity to manage the liquidity needs of our clients."

BofA hadn'​t made any announcements regarding its post-​MMF reform plans prior to the news of the BlackRock acquisition, but BlackRock has commented on its plans. (​See our July 31 News, "BlackRock to Liquidate 3 Muni MMFs, Convert Old Merrill Primes to Govt.) According to our Money Fund Intelligence XLS, BofA'​s largest portfolio is the BofA Money Market Reserve at about $​16 billion. It also has the BofA Cash Reserves portfolio (​at one time the world'​s largest money fund under the Nations Cash Reserves moniker) which now has around $​7.​2 billion. Also, BofA Government Reserves has about $​4.​1 billion, Govt Plus Reserve has $​2.​3 billion, and Treasury Reserves has about $​7.​8 billion.

This news accelerates the trend towards consolidation that we'​ve seen over the past several years. Earlier but smaller transactions include: Federated'​s acquisition of Reich & Tang'​s and Huntington'​s money businesses and Dreyfus acquiring the bulk of Touchstone'​s money market funds. `​But the BlackRock purchase of BofA is by far the largest splash yet. We have also seen a parade of smaller companies exit the money fund space since reforms were announced. See our Oct. 29 News, "Pioneer, Nationwide Converting Prime to Govt; 2 More Exit MMF Space," and August 17 News, "Another Muni Money Fund Liquidates: A Recap of Recent Expirations."

Currently we track 68 money fund managers, down from 74 on July 31, 2014, just after money fund reforms were adopted. Since then we have also seen Williams Capital, Forward Funds, Alpine, Virtus, RBB, and Eaton Vance exit the space. When you add impending departures William Blair and Delaware, along with BofA, we'​re down to 65 money fund managers. (​For more on money fund complex changes, read our story from July, "Managers Rolling with Reform Changes; Recap of Announcements So Far," and see our November Money Fund Intelligence, which ships Friday.)

​

Money fund assets jumped in October following a weak September, starting what is likely their traditional 4th quarter surge. (​Money funds have averaged asset increases of over $​100 billion in Q4 the past 4 years, according to our MFI XLS.) The Investment Company Institute'​s weekly statistics show that assets are up about $​48.​0 billion through October 28, making perhaps the strongest month since Dec. 2014. ICI'​s latest monthly asset flow numbers also verify that money fund assets decreased slightly in September, the first month since April that assets have declined. We review ICI'​s latest "Trends in Mutual Fund Investing," which shows that total money fund assets decreased by $​5.​1 billion in September, and ICI'​s latest weekly "Money Market Fund Assets" report. Further, we examine ICI'​s "Month-​End Portfolio Holdings of Taxable Money Funds," which confirms our that holdings of Repurchase Agreements hit an all-​time high in September ($​692.​4 billion) and Government Agency holdings reached their highest level since December 2010 ($​399.​3 billion). (​See Crane Data'​s October 14 News, "Holdings Show Huge Jump in Fed Repo; Agencies Surge on Cash Res Shift."

Money market mutual fund assets increased for the sixth week in a row, according to ICI'​s latest weekly "Money Market Fund Assets" report. Month-​to-​date in October (​through 10/​28), money market fund assets are up $​48.​0 billion to $​2.​717 trillion. If it holds up, a $​48.​0 billion increase would make October the best month of the year for money funds. Year-​to-​date through October 28, money fund assets are down just $​16 billion, with Retail assets up $​4 billion and Institutional assets down $​20 billion.

ICI'​s most recent weekly asset update, for the week ended October 29, says, "Total money market fund assets increased by $​18.​29 billion to $​2.​72 trillion for the week ended Wednesday, October 28, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (​including agency and repo) increased by $​12.​18 billion and prime funds increased by $​7.​18 billion. Tax-​exempt money market funds decreased by $​1.​07 billion."

The weekly series adds, "Assets of retail money market funds decreased by $​4.​45 billion to $​890.​88 billion. Among retail funds, Treasury money market fund assets decreased by $​900 million to $​207.​02 billion, prime money market fund assets decreased by $​2.​79 billion to $​505.​22 billion, and tax-​exempt fund assets decreased by $​760 million to $​178.​65 billion. Assets of institutional money market funds increased by $​22.​74 billion to $​1.​83 trillion. Among institutional funds, Treasury money market fund assets increased by $​13.​08 billion to $​806.​54 billion, prime money market fund assets increased by $​9.​97 billion to $​953.​16 billion, and tax-​exempt fund assets decreased by $​310 million to $​66.​32 billion."

ICI'​s most recent "​Trends" confirms that September was the first negative month since April, as total money fund assets dropped $​5.​1 billion, or 0.​2%, to $​2.​668 trillion. This ended a four-​month winning streak -- assets were up $​8.​1 billion in August, $​45.​9 billion in July, $​12.​9 billion in June, and $​38.​0 billion in May. However, in the 12 months since Sept. 30, 2014, money fund assets were up $​64 billion, according to ICI.

The September release says, "​The combined assets of the nation'​s mutual funds decreased by $​360.​94 billion, or 2.​3 percent, to $​15.​28 trillion in September, according to the Investment Company Institute'​s official survey of the mutual fund industry.... Bond funds had an outflow of $​20.​05 billion in September, compared with an outflow of $​23.​53 billion in August.... Money market funds had an outflow of $​6.​06 billion in September, compared with an inflow of $​8.​77 billion in August. In September funds offered primarily to institutions had an outflow of $​9.​38 billion and funds offered primarily to individuals had an inflow of $​3.​32 billion." Money funds now represent 17.​5% of all mutual fund assets, while bond funds represent 22.​6%.

ICI'​s latest Portfolio Holdings summary shows that Repos had a record-​setting month as holdings soared to new highs. Repurchase agreement holdings increased $​153.​9 billion, or 28.​6%, in September to $​692.​4 billion. Repo jumped ahead of CDs as the largest segment representing 28.​6% of taxable MMF holdings. As previously mentioned, the $​692.​4 billion in Repo appears to be the highest total we have ever seen. CDs (​including Eurodollar CDs) went in the other direction, decreasing $​156.​8B, or 24.​1%, in September to $​494.​5 billion. (​ICI'​s CD total likely includes Time Deposits, which we, and the SEC, categorize as "​Other" -- we reported a sizable decrease in Other in September.) CDs make up 20.​4% of holdings.

U.​S. Government Agency Securities vaulted over Commercial Paper and Treasuries into third place after increasing $​29.​0 billion, or 7.​8%, to $​399.​3 billion (​16.​6% of assets). This jump is likely due to the conversion of money funds from Prime to Government, including the $​115 billion Fidelity Cash Reserves, which is set to complete its conversion by December 1. Treasury Bills & Securities fell to fourth place among composition segments, decreasing $​20.​0 billion, or 5.​1%, in September to $​391.​5 billion (​16.​1% of assets). Commercial Paper dropped to fifth, declining $​22.​2B, or 6.​2%, to $​337.​9 billion (​13.​9% of assets). Notes (​including Corporate and Bank) gained by $​2.​3 billion, or 3.​0%, to $​77.​4 billion (​3.​2% of assets), and Other holdings (​including Cash Reserves) stood at $​31.​8 billion, down $​5.​3 billion.

The Number of Accounts Outstanding in ICI'​s series for taxable money funds decreased by 170.​2 thousand to 23.​123 million, while the Number of Funds fell 2 to 350. Over the past 12 months, the number of accounts fell by 589.​0 thousand and the number of funds declined by 19. The Average Maturity of Portfolios dropped to 35 days in September, down 1 day from August. Over the past 12 months, WAMs of Taxable money funds have declined by 10 days. At 35 days, WAM'​s remain at the lowest level since June 2010, according to our analysis of ICI'​s data.

Note: Crane Data updated its October MFI XLS to reflect the 9/​30/​15 composition data and maturity breakouts for our entire fund universe last week. Note too that we are now producing a "Holdings Reports Issuer Module," which allows subscribers to choose a series of Portfolio Holdings and Issuers and to see a full listing of which money funds own what paper. (​Visit our Content Center and the latest Money Fund Portfolio Holdings download page to access our October Money Fund Portfolio Holdings and the latest version of this new file.)

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