News Archives: September, 2021
The Investment Company Institute released its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for August 2021 on Wednesday. The monthly "Trends" report shows that money fund assets increased $25.5 billion in August to $4.535 trillion. This follows a decreased $24.4 billion in July, a decrease of $73.4 billion in June, and increases of $78.6 billion in May, $31.9 billion in April, $129.4 billion in March and $39.4 billion in February. MMFs decreased $5.2 billion in January, $10.0 billion in December and $12.0 billion in November, and assets also fell $47.6 billion in October and $118.4 billion in September. For the 12 months through August 31, 2021, money fund assets have increased by $12.6 billion, or 0.3%. (Month-to-date in September through 9/28, MMF assets have increased by $5.4 billion according to Crane's MFI Daily.)
Their monthly release states, "The combined assets of the nation’s mutual funds increased by $435.37 billion, or 1.7 percent, to $26.60 trillion in August, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an inflow of $34.26 billion in August, compared with an inflow of $16.04 billion in July.... Money market funds had an inflow of $25.40 billion in August, compared with an outflow of $24.42 billion in July. In August funds offered primarily to institutions had an inflow of $18.00 billion and funds offered primarily to individuals had an inflow of $7.41 billion."
The Institute's latest statistics show that both Taxable funds saw gains while Tax Exempt MMFs saw declines last month. Taxable MMFs increased by $26.1 billion in August to $4.445 trillion. Tax-Exempt MMFs decreased $0.5 billion to $90.7 billion. Taxable MMF assets increased year-over-year by $42.3 billion (1.0%), while Tax-Exempt funds fell by $29.6 billion over the past year (-24.6%). Bond fund assets increased by $31.3 billion in August to a record $5.605 trillion; they've risen by $668.9 billion (13.6%) over the past year.
Money funds represent 17.1% of all mutual fund assets (down 0.1% from the previous month), while bond funds account for 21.1%, according to ICI. The total number of money market funds was 307, down 7 from the prior month and down from 352 a year ago. Taxable money funds numbered 247 funds, and tax-exempt money funds numbered 60 funds.
ICI's "Month-End Portfolio Holdings" confirms yet another plunge in Treasuries and another surge in Repo last month. Treasury holdings in Taxable money funds still remain (but barely) the largest composition segment (since surpassing Repo last April). Treasury holdings plunged $95.8 billion, or -5.0%, to $1.824 trillion, or 41.0% of holdings. Treasury securities have decreased by $457.5 trillion, or -20.1%, over the past 12 months. (See our Sept. 13 News, "Sept. MF Portfolio Holdings: Repos Tie T-Bills as Largest MF Segment.")
Repurchase Agreements were the second largest composition segment; repos jumped by $162.5 billion, or 9.9%, to $1.800 trillion, or 40.5% of holdings. Repo holdings have increased $806.5 billion, or 81.2%, over the past year. U.S. Government Agency securities were the third largest segment; they decreased $14.5 billion, or -3.0%, to $475.4 billion, or 10.7% of holdings. Agency holdings have fallen by $270.1 billion, or -36.2%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they decreased by $7.9 billion, or -4.2%, to $178.2 billion (4.0% of assets). CDs held by money funds shrank by $34.7 billion, or -16.3%, over 12 months. Commercial Paper took fifth place, up $3.4 billion, or 2.3%, to $154.1 billion (3.5% of assets). CP has decreased by $33.5 billion, or -17.8%, over one year. Other holdings decreased to $23.7 billion (0.5% of assets), while Notes (including Corporate and Bank) were up to $4.0 billion (0.1% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 45.623 million, while the Number of Funds was down 3 to 247. Over the past 12 months, the number of accounts rose by 5.938 million and the number of funds decreased by 25. The Average Maturity of Portfolios was 37 days, down one day from July. Over the past 12 months, WAMs of Taxable money have decreased by 6.
In other news, another recent release from ICI tells us that, "Retirement Assets Total $37.2 Trillion in Second Quarter 2021." It includes data tables showing that money market funds held in retirement accounts fell to $536 billion in total, or 12% of the total $4.534 trillion in money funds. MMFs represent 4.4% of the total $12.123 trillion of mutual funds in retirement accounts.
The release says, "` Total US retirement assets were $37.2 trillion as of June 30, 2021, up 4.8 percent from March 31, 2021. Retirement assets accounted for 33 percent of all household financial assets in the United States at the end of June 2021. Assets in individual retirement accounts (IRAs) totaled $13.2 trillion at the end of the second quarter of 2021, an increase of 5.4 percent from the end of the first quarter of 2021. Defined contribution (DC) plan assets were $10.4 trillion at the end of the second quarter, up 5.3 percent from March 31, 2021. Government defined benefit (DB) plans— including federal, state, and local government plans—held $7.5 trillion in assets as of the end of June 2021, a 4.0 percent increase from the end of March 2021. Private-sector DB plans held $3.5 trillion in assets at the end of the second quarter of 2021, and annuity reserves outside of retirement accounts accounted for another $2.5 trillion."
The ICI tables also show money funds accounting for $368 billion, or 6%, of the $5.967 trillion in IRA mutual fund assets and $113 billion, or 2%, of the $4.815 trillion in 401(k) plan holdings.
At last week's Money Fund Symposium conference in Philadelphia, our opening session was entitled, "Keynote: Adapting to Regulations, Tech & ESG," and featured our Peter Crane moderating a discussion with BlackRock's Tom Callahan and Federated Hermes' Debbie Cunningham. We excerpt from their comments below. (Note: Thanks once again to those who attended and supported our recent Money Fund Symposium! Watch for more coverage in coming days and in the October issue of our Money Fund Intelligence newsletter. The recording and materials are available here for Attendees and Crane Data subscribers.)
Callahan comments, "I think this is the first time as an industry that we've come together post-Covid, which is incredible. And Pete, I know you had an awful lot of sleepless nights and chewed a lot of fingernails over the last couple months, just hoping that we'd all get to be here. So, I personally am thrilled, and can't wait over the next couple of days to reconnect with so many industry colleagues and old friends. And Debbie, it is always such an honor and a privilege to be on the podium with you. You are the unofficial spokesman for our industry and such an incredible leader, and it's just a thrill to be here with you. The home of BlackRock Cash is Philadelphia. We manage just over $1 trillion right up the street at the Cira Center."
He continues, "Given that this is the first time that we are all together, as an industry, I feel like, again, we're kind of in the crosshairs and we're being loudly criticized by certain pundits, all of them outside of our industry. To hear certain pundits tell the story, March 2020 was not a global health crisis that spread to the global capital markets. To hear them tell the story, it was a money fund crisis that became a global pandemic. You know, I don't believe that that is the correct narrative, and I don't believe you do. I certainly know that that our regulators don't believe that to be the narrative."
Callahan explain, "Here is what I believe the correct narrative for the cash management industry through the current crisis is.... Our clients collectively, as everyone knows, are the largest and most sophisticated clients in the world, and they were thrust quite unexpectedly in March of 2020 into the most challenging operating environment that any of them had ever seen. In response, they did the logical thing. They raised liquidity. They raised a biblical amount of liquidity. And much of that, over $1.25 trillion, was invested in money funds in three weeks at the end of March 2020 and at the beginning of April."
He states, "So at their time of maximum vulnerability, they turned to the people in this room to manage their most precious asset, which was which was their liquidity. All this at a time when the operational infrastructure of the money markets was severely compromised. There were fails happening all over the market. Liquidity in every asset class, including, by the way, U.S. Treasuries, was somewhere close to zero. And a lot of us, and a lot of people in this room, because we're human beings at the same time, were disoriented and concerned about our families and trying to figure out how to do simple things like, 'How do you roll a $10 billion open repo from a laptop in your daughter's bedroom when the Wi-Fi just quit?'"
Callahan adds, "So that's what we were all contending with.... We get to the other side of that, and there is not one client that I'm aware of in the global industry that lost access to liquidity for even a minute. Now, that is not to say that as an industry, we don't have work to do. Certain of our products certainly had vulnerabilities exposed. And a lot of us have spent a huge amount of time, especially Debbie, this year, writing letters, writing white papers, working constructively with our regulators."
He says, "And I do believe that this time, once and for all, we're going to get it right. We're not only going to fix Prime funds, we're also going to fix the market infrastructure that surrounds [them]. But you know what I think the correct narrative for the current crisis for cash management industry is that we demonstrated once again that we were a source of stability to the global financial markets, not a source of instability. And for that, I think that all of you and all of us should feel very proud."
On ESG, Cunningham tells the Symposium, "We acquired a firm named Hermes Asset Management out of U.K. in July of 2018.... That [ESG] essentially was their area of expertise.... From the liquidity group's perspective, we were the first to be fully integrated.... We had portfolio teams within our liquidity business that includes portfolio managers, investment analysts and traders. What made the most sense to us was integrating the information that came and that continues to come from the responsible investing office through Hermes into our credit analysis process. So, from a banking perspective, as the agencies were doing banking, the governance issues, that would be the 'G' aspect, take precedence when reviewing that.... So there's been a full integration of proprietary product research that comes from our engagement and our ESG analysts that are used now by the investment team in the liquidity products in addition to all public information that we also subscribe to."
She explains, "So, I feel like we've come a long way. And, you know, clients dictate, though, how it's being managed. The information that we have on a desirability basis of this type of analysis from our Texas clients is vastly different than our London clients. So, we want to take into consideration the differences and the nuances of all our client base and make sure that we're not providing we're not doing something that is problematic to any one of those groups."
Callahan adds, "I would just say I think everyone knows right now ESG has transformed the global asset management industry. It was a little late coming to the cash industry. It's only about two years ago that as an industry, we kind of got serious about this. For me, this is the most exciting, most dynamic, and if you're looking for reasons to be optimistic about the future of the global cash management industry, I think you really do need to look at ESG.... What we're hearing from our clients is, they expect more from a money fund. I mean, money funds have been around for close to 50 years now. Stability, liquidity, yield, in a different environment, those [are the] standard things. But our clients ... have more cash than they've ever had, and there's been a very profound shift in thinking."
During a discussion of pending money fund reforms, Cunningham tells the audience of about 250, "When we look at the timing of the reforms that followed the 2008 financial crisis, the first step, the easy set, was concluded in 2010 and implemented in 2011. So it was a 2-3 year time period. The second set, the more difficult set, was concluded in 2014 and implemented in 2016. There you had a 6-8 year timeframe. Now, I certainly don't think that what we're going to see as a result of the global pandemic, the money market crisis of March 2020, is something that's going to take that same 2-8 year time period. Having said that, it certainly does not seem to be the top priority of the SEC commissioners at this point ... so I would guess we've got at least 2-3 years of debate around this."
She continues, "Now, when you look at the global side of things, from an FSB and IOSCO perspective, they've put forth timeframes that are much sooner than what the SEC, who hasn't really even put forth any timeframe. I mean, what we've been responding to in the US has been the PWG Report, not necessarily anything that came from the SEC themselves. And as such, you know, again, a reminder that in 2009, some of the European regulators were to some degree ready to go with regulation but held off and ended up following the U.S.... So I don't doubt that that could be delayed again from a FSB/IOSCO standpoint, just simply because it doesn't seem to be the top priority of what's happening here in the U.S."
Finally, Callahan weighs in, "Well, for us, if you look at all of those comment letters ... I think all the good ideas are there. A lot of the bad ideas are there, too. But I think we sort of have the universe of potential modifications, changes, adaptations, whatever you want to call it, the ones that will get us to where we want to go. But our most important message is: that's not enough.... I think what the regulators are trying to achieve is a money market structure where every time there's a crisis, they're not having to come in and bail this market out.... There's a lot of good ideas around creating all-to-all platforms, creating better transparency, more standardization is critical."
He adds, "We don't believe that as an industry that we can just get there because these are big structural, difficult changes. I think there's going to need to be a regulatory mandate. So our plea is that, yes, I mean, we are all working constructively and there's a lot of great ideas and a lot of them can work. [But] please focus on that fundamental problem, or ultimately you're not really going to achieve anything. Then our second point is ... there are some [suggestions] that essentially would end up making prime funds obsolete, things like capital or minimum balance at risk or swing pricing.... If there are voices that feel like these products should be banned, then let's have that honest debate. But let's not sort of back-door try to ban prime funds by putting some Rube Goldberg set of requirements on top of the things that are just going to get you to the same place."
Dreyfus is the latest money market fund manager to integrate ESG criteria into its overall portfolio management credit analysis, joining Federated Hermes, Goldman Sachs, J.P. Morgan and others. A spokesperson for BNY Mellon Investment Management tells us that, "Dreyfus Cash Investment Strategies (Dreyfus CIS) has announced the formal integration of environmental, social, and governance (ESG) considerations into its credit analysis process. We define ESG integration as the explicit inclusion of ESG factors in our credit evaluation where available and, ultimately, investment decisions. There is no change to our core investment process and many of the factors embedded within ESG are part of our fundamental credit analysis already." (Note: Thanks again to those who attended our "Money Fund Symposium" last week in Philadelphia! Watch for coverage of the sessions, many of which included comments on ESG money funds, in coming days. The recording and materials are available here for Attendees and Crane Data subscribers. Mark your calendars for next year's MF Symposium in Minneapolis, June 20-22, 2022.)
John Tobin, CIO of Dreyfus, comments, "We believe the integration of ESG into our fundamental credit process where available makes us better investors and supports our mission of protecting our clients' future financial wellbeing. In our view, issuers that are environmentally aware, socially responsible, and well governed are often better positioned to manage risks and capitalize on opportunities."
CEO of ETF, Index, and Cash Investment Strategies at BNY Mellon Investment Management Stephanie Pierce adds, "As stewards of sound investment management practices, we are steadfast in our commitment to enrich our investment processes to deliver products designed to meet and exceed the expectations of our clients."
A Prospectus Supplement filing for the Dreyfus Money Market Funds <b:>`_says for "`Funds Other Than Municipal, Treasury Only and Government Only Money Market Funds," "The following information supplements the information contained in the section of the fund's Summary Prospectus and Prospectus entitled 'Fund Summary -- Principal Investment Strategy' and in the section of the fund's Prospectus entitled 'Fund Details -- Goal and Approach.'
It explains, "The fund seeks to invest in securities that present minimal credit risk, based on BNY Mellon Investment Adviser's assessment of the issuer's or guarantor's credit quality and capacity to meet its financial obligations, among other factors. As part of the security selection process, where appropriate and as applicable, and to the extent relevant information is available, BNY Mellon Investment Adviser also evaluates whether environmental, social and governance (ESG) factors could have a positive, negative or neutral impact on the cash flows or risk profiles of the issuers or guarantors of the securities in which the fund may invest."
Dreyfus states, "In evaluating ESG factors, BNY Mellon Investment Adviser will use ESG research developed by one or more of its affiliates as well as ESG ratings and other material information provided by third parties and the issuers or guarantors of securities in which the fund may invest. When considered material, identified ESG factors are incorporated within BNY Mellon Investment Adviser's credit risk analysis, but BNY Mellon Investment Adviser may determine that other attributes of an investment outweigh ESG considerations when making an investment decision."
They write, "Further, BNY Mellon Investment Adviser may not consider ESG ratings or other ESG data in connection with every investment decision it makes on behalf of the fund. As a result, securities of issuers or securities guaranteed by guarantors that may be negatively impacted by ESG factors may be purchased and retained by the fund, while the fund may divest or not invest in securities of issuers or securities guaranteed by guarantors that may be positively impacted by such factors."
Under "Fund Details -- Investment Risks," the filing says, "ESG evaluation risk. The fund's incorporation of ESG considerations into its investment approach may cause it to make different investments than funds that invest in money market securities but do not incorporate ESG considerations when selecting investments. Under certain economic conditions, this could cause the fund to underperform funds that do not incorporate ESG considerations. For example, the incorporation of ESG considerations may result in the fund forgoing opportunities to buy certain securities when it might otherwise be advantageous to do so or selling securities when it might otherwise be disadvantageous for the fund to do so."
Dreyfus explains, "The incorporation of ESG considerations may also affect the fund's exposure to certain sectors and/or types of investments, and may adversely impact the fund's performance depending on whether such sectors or investments are in or out of favor in the market. BNY Mellon Investment Adviser's security selection process incorporates ESG data provided by affiliated and unaffiliated data providers, which may be limited for certain issuers and guarantors and/or only take into account one or a few ESG related components."
They tell us, "In addition, ESG data may include quantitative and/or qualitative measures, and consideration of this data may be subjective. Different methodologies may be used by the various data sources that provide ESG data for issuers and guarantors, including the issuers and guarantors themselves. ESG data from data providers used by BNY Mellon Investment Adviser often lacks standardization, consistency and transparency, and for certain issuers and guarantors, such data, including ESG ratings and scores, may not be available, complete or accurate."
The supplement adds, "BNY Mellon Investment Adviser's evaluation of ESG factors relevant to the cash flows or risk profile of a particular issuer or guarantor of securities, or otherwise, may be adversely affected in such instances. As a result, the fund's investments may differ from, and potentially underperform, funds that incorporate ESG data from other sources or utilize other methodologies."
For more on ESG and Social MMFs, see these recent Crane Data News stories: "Goldman Launching Loop Capital Class to Support Black Women in STEM" (9/20/21), "BlackRock Converts Fed Trust to Social MMF; CastleOak Expands Team (9/15/21), "BlackRock Expands ESG Lineup; Files for New Bancroft, Cabrera Shares (8/19/21), "Northern Renames Diversity Shares Siebert Williams; Safened Platform (4/20/21); "Morgan Stanley Files for CastleOak Shares; Bond Fund Symposium Today" (3/25/21); "JP Morgan Launches "Empower" Share Class to Support Minority Banks" (2/24/21); "Invesco Files for Cavu Secs Class" (12/18/20); "ESG and Social MMF Update: Mischler News, Green Deposits, Reg Debate" (12/4/20); "Goldman Launches Social Class; Tiedemann Adds FICA; CS Green ABCP" (1/24/20); "Mischler Financial Joins "Impact" or Social Money Market Investing Wave" (12/5/19); and "Dreyfus Launches "Impact" or Diversity Government Money Market Fund" (11/21/19). (Let us know if you'd like to see our listing of ESG and Social money market funds too.)
The Investment Company Institute published, "Worldwide Regulated Open-Fund Assets and Flows, Second Quarter 2021," which shows that money fund assets globally rose by $86.0 billion, or 1.0%, in Q2'21 to $8.565 trillion. The increase was driven by gains in Chinese and U.S. money market fund assets, but French and Australian MMF assets declined. MMF assets worldwide increased by $404.9 billion, or 5.0%, in the 12 months through 6/30/21, and money funds in the U.S. now represent 52.9% of worldwide assets. We review the latest Worldwide MMF totals, below. (Note: Thanks to our speakers and sponsors, and to those who attended our "Money Fund Symposium" last week in Philadelphia! The recording and materials are available here for Attendees and Crane Data subscribers. Mark your calendars for next year's MF Symposium in Minneapolis, June 20-22, 2022.)
ICI's release says, "Worldwide regulated open-end fund assets increased 6.1 percent to $68.55 trillion at the end of the second quarter of 2021, excluding funds of funds. Worldwide net cash inflow to all funds was $853 billion in the second quarter, compared with $1.2 trillion of net inflows in the first quarter of 2021. The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA), the organization of national fund associations. The collection for the second quarter of 2021 contains statistics from 46 jurisdictions."
It explains, "The growth rate of total regulated open-end fund assets reported in US dollars was increased by US dollar depreciation over the second quarter of 2021. For example, on a US dollar-denominated basis, fund assets in Europe increased by 5.9 percent in the second quarter, compared with an increase of 4.5 percent on a euro-denominated basis."
ICI's quarterly continues, "On a US dollar-denominated basis, equity fund assets increased by 7.8 percent to $32.09 trillion at the end of the second quarter of 2021. Bond fund assets increased by 4.5 percent to $13.51 trillion in the second quarter. Balanced/mixed fund assets increased by 7.1 percent to $8.51 trillion in the second quarter, while money market fund assets increased by 1.1 percent globally to $8.56 trillion."
The release also tells us, "At the end of the second quarter of 2021, 47 percent of worldwide regulated open-end fund assets were held in equity funds. The asset share of bond funds was 20 percent and the asset share of balanced/mixed funds was 12 percent. Money market fund assets represented 12 percent of the worldwide total."
ICI adds, "Net sales of regulated open-end funds worldwide were $853 billion in the second quarter of 2021. Flows into equity funds worldwide were $256 billion in the second quarter, after experiencing $347 billion of net inflows in the first quarter of 2021. Globally, bond funds posted an inflow of $304 billion in the second quarter of 2021, after recording an inflow of $318 billion in the first quarter..... Money market funds worldwide experienced an inflow of $79 billion in the second quarter of 2021 after registering an inflow of $263 billion in the first quarter of 2021."
According to Crane Data's analysis of ICI's "Worldwide" fund data, the U.S. sustained its position as the largest money fund market in Q2'21 with $4.534 trillion, or 52.9% of all global MMF assets. U.S. MMF assets increased by $37.2 billion (0.8%) in Q2'21 but decreased by $100.4 billion (-2.2%) in the 12 months through June 30, 2021. China remained in second place among countries overall. China saw assets jump $45.7 billion (3.3%) in Q2, to $1.436 trillion (16.8% of worldwide assets). Over the 12 months through June 30, 2021, Chinese MMF assets have surged by $363.8 billion, or 33.9%.
Ireland remained third among country rankings, ending Q2 with $699.2 billion (8.2% of worldwide assets). Dublin-based MMFs were up $8.1B for the quarter, or 1.2%, and up $25.4B, or 3.8%, over the last 12 months. Luxembourg remained in fourth place with $485.0 billion (5.7% of worldwide assets). Assets there increased $3.9 billion, or 0.8%, in Q2, and were up $3.8 billion, or 0.8%, over one year. France was in fifth place with $424.9B, or 5.0% of the total, down $18.6 billion in Q2 (-4.2%) and up $65.4B (18.2%) over 12 months.
Australia was listed in sixth place with $258.5 billion, or 3.0% of worldwide assets. Its MMFs decreased by $12.3 billion, or -4.5%, in Q2. Korea, moved up to be the 7th ranked country, saw MMF assets increase $14.9 billion, or 13.3%, in Q2'21 to $126.6 billion (1.5% of the world's total MMF assets); they've risen $13.7 billion (12.1%) for the year. Japan fell to 8th place with $125.0 billion (1.5%); assets there fell $3.7 billion (-2.9%) in Q2 and increased by $10.9 billion (9.6%) over 12 months. Brazil was in 9th place, assets increased $17.3 billion, or 17.7%, to $114.6 billion (1.3% of total assets) in Q2. They've increased $33.6 billion (41.5%) over the previous 12 months. ICI's statistics show Mexico in 10th place with $66.5B, or 0.8% of total assets, up $2.4B (3.8%) in Q2 and up $8.0 billion (41.5%) for the year.
India was in 11th place, increasing $801 million, or 1.4%, to $59.1 billion (0.7% of total assets) in Q2 and decreasing $6.2 billion (-9.5%) over the previous 12 months. Chinese Taipei ($34.5B, down $3.3B but up $4.3B over the quarter and year, respectively) ranked 12th ahead of the U.K. ($29.1B, up $780M and up $2.1B). Canada ($27.0B, down $2.3B and down $4.9B) and South Africa ($26.3B down $2.2B and up $2.0B), rank 13th through 15th, respectively. Chile, Switzerland, Norway, Argentina and Germany round out the 20 largest countries with money market mutual funds.
ICI's quarterly series shows money fund assets in the Americas total $4.782 trillion, up $55.7 billion in Q2. Asian MMFs increased by $42.2 billion to $2.052 trillion, and Europe saw its money funds decrease by $9.7 billion in Q2’21 to $1.705 trillion. Africa saw its money funds decrease $2.2B to $26.3 billion.
Note that Ireland and Luxembourg's totals are primarily "offshore" money funds marketed to global multinationals, while most of the other countries in the survey have mainly domestic money fund offerings. Contact us if you'd like our latest "Largest Money Market Funds Markets Worldwide" spreadsheet, based on ICI's data. (Let us know too if you'd like to see our latest Money Fund Intelligence International product, which tracks "offshore" money market funds domiciled in Europe and outside the U.S.)
The Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States" statistical survey (a.k.a. "Flow of Funds") Thursday. Among the 4 tables it includes on money market mutual funds, the Second Quarter 2021 edition shows that Total MMF Assets increased by $39 billion to $4.539 trillion in Q2'21. The Household Sector, by far the largest investor segment with $2.773 trillion, saw assets increase again in Q2. The second largest segment, Nonfinancial Corporate Businesses, experienced another drop in assets. The Fed's latest Z.1 numbers, which contain one of the few looks at money fund investor segments available, also shows an asset decrease in MMF holdings for the Property-Casualty Insurance category in Q2 2021.
Other Financial Business (formerly Funding Corps), Private Pension Funds, Life Insurance Companies and the Rest of the World category all saw small asset increases in Q2. The Nonfinancial Corporate Businesses and State&Local Governments sectors remained unchanged. Over the past 12 months, the Household Sector and Private Pension Fund categories showed the biggest asset increases, while Nonfinancial Corporate Businesses saw the biggest asset decrease.
The Fed's "Table L.206," "Money Market Mutual Fund Shares," shows that total assets increased by $39 billion, or 0.9%, in the second quarter to $4.539 trillion. The largest segment, the Household sector, totals $2.773 trillion, or 61.1% of assets. The Household Sector rose by $44 billion, or 1.6%, in the quarter. Over the past 12 months through Q2'21, Household assets were up $83 billion, or 3.1%.
Nonfinancial Corporate Businesses, the second-largest segment according to the Fed's data series, held $610 billion, or 13.4% of the total. Assets here fell by $19 billion in the quarter, or -3.0%, and they've decreased by $259 billion, or -29.8%, over the past year. Other Financial Business was the third-largest investor segment with $508 billion, or 11.2% of money fund shares. They rose by $7 billion, or 1.4%, in the latest quarter. Other Financial Business has increased by $28 billion, or 5.8%, over the previous 12 months.
The fourth-largest segment, Private Pension Funds, held $232 billion (5.1%). The Rest of the World, was the 5th largest category with 2.9% of money fund assets ($133 billion); it was up by $1 billion (0.9%) for the quarter but down $3 billion, or -2.1% over the last 12 months. The Nonfinancial Noncorporate Business remained sixth place in market share among investor segments with 2.7%, or $121 billion, while Life Insurance Companies held $67 billion (1.5%), Property-Casualty Insurance held $33 billion (0.7%), State and Local Governments held $36 billion (0.8%), and State and Local Government Retirement Funds held $29 billion (0.6%), according to the Fed's Z.1 breakout.
The Fed's "Flow of Funds" Table L.121 shows "Money Market Mutual Funds" largely invested in "Debt Securities," or Credit Market Instruments, with $2.865 trillion, or 63.1% of the total. Debt securities includes: Open market paper ($147 billion, or 3.2%; we assume this is CP), Treasury securities ($2.107 trillion, or 46.4%), Agency and GSE-backed securities ($499 billion, or 11.0%), Municipal securities ($99 billion, or 2.2%) and Corporate and foreign bonds ($12 billion, or 0.3%).
Other large holdings positions in the Fed's series include Security repurchase agreements ($1.586 trillion, or 34.9% of total assets) and Time and savings deposits ($149 billion, or 3.3%). Money funds also hold minor positions in Miscellaneous assets ($11 billion, or 0.2%), Foreign deposits ($0 billion, 0.0%) and Checkable deposits and currency (-$71 billion, -1.6%). Note: The Fed also lists "Variable Annuity Money Funds," which currently total $37 billion.
During Q1, Debt Securities were down $370 billion. This subtotal included: Open Market Paper (down $36 billion), Treasury Securities (down $255 billion), Agency- and GSE-backed Securities (down $73 billion), Corporate and Foreign Bonds (up $12 billion) and Municipal Securities (down $5 billion). In the second quarter of 2021, Security Repurchase Agreements were up $530 billion, Foreign Deposits were down $2 billion, Checkable Deposits and Currency were down $18 billion, Time and Savings Deposits were down by $36 billion, and Miscellaneous Assets were down $66 billion.
Over the 12 months through 6/30/21, Debt Securities were down $680 billion, which included Open Market Paper (down $72B), Treasury Securities (down $243B), Agencies (down $327B), Municipal Securities (down $37), and Corporate and Foreign Bonds (down $1B). Foreign Deposits were down $2B, Checkable Deposits and Currency were down $26B, Time and Savings Deposits were down $67B, Securities repurchase agreements were up $680B and Miscellaneous Assets were down $97B.
Note that the Federal Reserve changed its numbers related to money market funds substantially in the second quarter of 2018. Its "Release Highlights Second Quarter 2018" tells us, "New source data for money market funds from the U.S. Securities and Exchange Commission's (SEC) form N-MFP have been incorporated into the sector's asset holdings (tables F.121 and L.121). Money market funds not available to the public, which are included in the SEC data, are excluded from Financial Accounts' estimates. Data revisions begin 2013:Q1. Holdings of money market fund shares by households and nonprofit organizations, state and local governments, and funding corporations (tables F.206 and L.206) have been revised due to a change in methodology based on detail from the Investment Company Institute. Data revisions begin 1976:Q1."
Morgan Stanley Investment Management posted a piece entitled, "Taking It to the Limit," which tells us, "The U.S. government is progressing towards exhausting its borrowing capacity and available cash in October. The market is beginning to take heed of the approaching legislative brick wall after sleepwalking through most of the summer. Recent headlines have focused on political wrangling in Washington with numerous ongoing battles, including the infrastructure package, federal budget, and the debt ceiling. Investors are beginning to focus on the potential for partisan political brinkmanship and the looming debt ceiling debate to introduce volatility into the markets, first showing up in the Treasury bill market, and perhaps spreading to other areas." (Note: Thanks to our excellent speakers and sponsors and to those who attended our Money Fund Symposium in Philadelphia this week! Watch for the recordings to be posted early next week and for excerpts in coming days.)
They write, "The debt ceiling, which is the U.S. borrowing limit set by Congress, has proven to be a market moving event in the past, most acutely in 2011 and 2013. Several market strategists have noted that the political climate in 2021 has similarities to a decade ago. Generally, when the debt ceiling comes up for extension, it is an unpopular and politically divided discussion, typically met with resistance by the minority party in Congress. Historically, expectations are and always have been that ultimately the debt ceiling will be resolved. But while the discussions linger, pushing the debt ceiling closer to the limit could invite substantial market volatility. Below we discuss the key areas to watch as this process continues."
Morgan Stanley explains, "The debt ceiling suspension expired on July 31, 2021 and the Treasury Department has been using extraordinary measures, as it has done in similar circumstances in the past, along with cash inflows, to finance government activities. Currently there is considerable market uncertainty surrounding how much longer the Treasury can continue to operate under these extraordinary measures before resulting in a technical default. If the Treasury reaches the point of exhausting these extraordinary measures, it could result in a technical default and/or a delayed payment by the U.S. Government."
They explain, "The effects of a technical default on money market funds are not prescribed. There is no guidance from SEC Rule 2a-7, which governs money market funds, or the rating agencies as to how money market funds are required to react to a potential default in U.S. Treasury securities. There is no explicit rule that forces money market funds to sell Treasury securities if they default. The responsibility lies with the fund board of directors and the portfolio managers to determine the best course of action for the portfolios. Against this backdrop, we think the best way to avoid this potential overall impact is to dynamically address the one factor that we as portfolio managers can control -- portfolio positioning, keeping in mind that the 'X date' is a moving target."
MSIM states, "The Morgan Stanley Liquidity Funds do not hold any positions in absolute Treasuries with October or November maturities, those deemed to have the highest potential default or delayed payment risk. The risk/reward in owning these Treasuries is not compelling from both a potential default or yield perspective."
They add, "Over the course of the summer, as Washington failed to address the debt ceiling and the political rhetoric began to increase, we proactively sold off these Treasuries when the market was not pricing in any concern surrounding the debt limit. Eliminating these exposures had a very minimal, if any, yield impact to our Portfolios given the extremely flat yield curve and reinvest environment. Compared with prior debt ceiling episodes, most of our funds have held more Treasuries on both an outright and percentage basis as part of our asset allocation given the significant debt issuance related to the government stimulus packages over the past year."
The publication says, "We felt taking this preemptive action diminished the potential illiquidity of Treasuries near the 'X date' and underscored our conservative, thoughtful, and proactive philosophy around portfolio positioning. The objectives of a liquidity investor revolve around capital preservation and liquidity and taking steps like this to avoid headline risk and potential market volatility is a key to achieving these goals."
Finally, Morgan Stanley writes, "Headlines on the debt ceiling will likely continue to proliferate so this is a good reminder for investors to evaluate their holdings in Government and Treasury money market funds to understand fund positioning and any potential exposure to Treasuries maturing in October and November. Morgan Stanley Investment Management's Liquidity team is committed to assisting you in evaluating treasury management and liquidity landscape and developing solutions tailored to your unique objectives. We look forward to helping you tap into our unique blend of expertise and resources."
For more, see these Crane Data News articles: "FT Writes on Debt Ceiling Battle, Impact on T-Bills and Money Funds (9/2/21), "Another Silly MMF Article from FT; Swirsky on Debt Ceiling Lessons" (11/25/13), "Fitch on Fed's Reverse Repos, Bank Support; Wells on Debt Ceiling" (11/13/13), "November MFI Features Debt Ceiling, JPMAM's Donohue, Portal News" (11/7/13), "MMF Assets Surge Following Debt Ceiling Resolution; ICI Blasts FT" (10/25/13), "MMFs See Big Outflows Prior to Debt Ceiling Extension; ICI's Reid" (10/18/13), "ICI, Stevens, Fitch Comment on Debt Ceiling Issues and Treasury MMFs (10/10/13), "October MFI Features Comment Letters, Fidelity's Prior, Debt Ceiling" (10/7/13), "ICI on S&P Downgrade, Reviews Flows During Debt Ceiling Debate" (8/8/11), "Fidelity's Huyck Comments on Debt Ceiling Countdown, Answers FAQs" (8/1/11), "More Debt Ceiling; Reuters Quotes Shapiro on Floating NAV, Europe" (7/22/11), "ICI's McMillan and Reid on Debt Ceiling Scenarios and Impact on MMFs" (7/21/11), "Invesco on Understanding the Debt Ceiling Debate and Money Funds" (7/13/11) and "Federated's Sue Hill Says Don't Sweat The Debt-Ceiling Showdown" (7/20/11).
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets rose by $24.9 billion in August to $5.011 trillion. (Month-to-date in September assets are down $50.0 billion through 9/20, according to our MFI Daily.) The SEC shows that Prime MMFs fell by $8.1 billion in August to $867.2 billion, Govt & Treasury funds increased $32.8 billion to $4.043 trillion and Tax Exempt funds increased $0.2 billion to $100.7 billion. Yields were mixed in August again, after their first increase in 24 months two months prior. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below.
August's asset increase follows a decrease of $39.9 billion in July, $86.9 billion in June, and increases of $72.4 billion in May, $46.3 billion in April, $146.1 billion in March, $30.5 billion in February and $35.4 billion in January. Over the 12 months through 8/31/21, total MMF assets have increased by $29.9 billion, or 0.6%, according to the SEC's series. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these assets in its collections.) The SEC's stats show that of the $5.011 trillion in assets, $867.2 billion was in Prime funds, down $8.1 billion in August. This follows a decline of $19.4 billion in July, $19.9 billion in June and $14.6 billion in May, and increases of $1.3 billion in April and $7.2 billion in March. Prime funds represented 17.3% of total assets at the end of August. They've decreased by $271.2 billion, or -23.8%, over the past 12 months.
Government & Treasury funds totaled $4.043 trillion, or 80.7% of assets. They increased by $32.8 billion in July, after decreasing $18.7 billion in July, $67.8 billion in June and increasing $90.3 billion in May, $48.4 billion in April and $140.9 billion in March. Govt & Treasury MMFs are up $329.0 billion over 12 months, or 8.9%. Tax Exempt Funds increased $0.2 billion to $100.7 billion, or 2.0% of all assets. The number of money funds was 316 in August, down two from the previous month and down 41 funds from a year earlier.
Yields for Taxable MMFs were flat in August. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on August 31 was 0.10%, unchanged from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 0.14%, also unchanged. Gross yields were 0.07% for Government Funds, unchanged from last month. Gross yields for Treasury Funds were also unchanged at 0.06%. Gross Yields for Tax Exempt Institutional MMFs were down a basis point to 0.04% in August. Gross Yields for Tax Exempt Retail funds were down one bp to 0.07%.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 0.06%, up one bp from the previous month but down 5 basis points from 12/31/20. The Average Net Yield for Prime Retail Funds was 0.02%, unchanged from the previous month, and down a basis point since 12/31/20. Net yields were 0.02% for Government Funds, unchanged from last month. Net yields for Treasury Funds were also unchanged from the previous month at 0.01%. Net Yields for Tax Exempt Institutional MMFs were unchanged from July at 0.02%. Net Yields for Tax Exempt Retail funds were unchanged at 0.01% in August. (Note: These averages are asset-weighted.)
WALs and WAMs were mixed in August. The average Weighted Average Life, or WAL, was 52.1 days (down 2.1 days) for Prime Institutional funds, and 52.8 days for Prime Retail funds (up 3.9 days). Government fund WALs averaged 79.7 days (down 2.6 days) while Treasury fund WALs averaged 90.9 days (up 0.2 days). Tax Exempt Institutional fund WALs were 17.0 days (down 0.2 days from the previous month), and Tax Exempt Retail MMF WALs averaged 25.9 days (up 0.4 days).
The Weighted Average Maturity, or WAM, was 34.4 days (down 2.9 days from the previous month) for Prime Institutional funds, 43.3 days (up 3.2 days from the previous month) for Prime Retail funds, 33.6 days (down 1.7 days) for Government funds, and 41.1 days (down 0.4 days) for Treasury funds. Tax Exempt Inst WAMs were down 0.4 days to 16.6 days, while Tax Exempt Retail WAMs increased 0.2 days to 25.1 days.
Total Daily Liquid Assets for Prime Institutional funds were 53.5% in August (up 2.1% from the previous month), and DLA for Prime Retail funds was 34.1% (down 2.4% from previous month) as a percent of total assets. The average DLA was 73.9% for Govt MMFs and 96.2% for Treasury MMFs. Total Weekly Liquid Assets was 63.0% (down 0.8% from the previous month) for Prime Institutional MMFs, and 48.6% (down 2.2% from the previous month) for Prime Retail funds. Average WLA was 86.9% for Govt MMFs and 99.2% for Treasury MMFs.
In the SEC's "Prime Holdings of Bank-Related Securities by Country table for August 2021," the largest entries included: Canada with $92.4 billion, France with $73.6 billion, Japan with $66.7 billion, the U.S. with $48.3B, Germany with $38.3B, the Netherlands with $30.9B, the U.K. with $28.8B, Aust/NZ with $25.3B and Switzerland with $9.1B. The gainers among the "Prime MMF Holdings by Country" were: France (up $1.5 billion), Aust/NZ (up $1.0B), Canada (up $0.7B), the Netherlands (up $0.6B) and Germany (up $0.3B). Decreases were shown by: Japan (down $4.5B), the U.S. (down $2.8B), Switzerland (down $1.7B) and the U.K. (down $1.0).
The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows Europe had $87.8B (down $0.8B from last month), the Eurozone subset had $162.1B (up $3.8B). The Americas had $140.7 billion (down $2.2B), while Asia Pacific had $104.9B (down $4.3B).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $863.4B billion in Prime MMF Portfolios as of August 31, $329.0B (38.1%) was in Government & Treasury securities (direct and repo) (down from $328.1B), $210.2B (24.3%) was in CDs and Time Deposits (down from $217.8B), $168.2B (19.5%) was in Financial Company CP (up from $167.0B), $120.1B (13.9%) was held in Non-Financial CP and Other securities (up from $123.3B), and $35.9B (4.2%) was in ABCP (up from $34.5B).
The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $154.3 billion, Canada with $126.5 billion, France with $158.7 billion, the U.K. with $68.0 billion, Germany with $27.9 billion, Japan with $140.2 billion and Other with $36.4 billion. All MMF Repo with the Federal Reserve was up $164.0 billion in August to $1.050 trillion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 7.5%, Prime Retail MMFs with 6.2%, Tax Exempt Inst MMFs with 2.2%, Tax Exempt Retail MMFs with 4.5%, Govt MMFs with 13.4% and Treasury MMFs with 12.6%.
This month, MFI interviews Rebecca Milchem, BlackRock's new Head of Cash for EMEA. BlackRock is the 2nd largest manager of money funds worldwide and the largest manager of Euro and Sterling MMFs (according to Crane Data's MFI International as of 8/31/21). We review the latest regulatory discussions, European vs. U.S. issues, and a number of other topics below in our Q&A. (Note: The following is reprinted from the Sept. issue of Money Fund Intelligence, which was published on Sept. 8. Contact us at info@cranedata.com to request the full issue or to subscribe. Note too: Crane Data is hosting its Money Fund Symposium conference live and in person, Sept. 21-23. For those attending, welcome to Philadelphia! Watch for coverage and highlights in coming days.)
MFI: Give us a little bit of history. Milchem: I joined Barclays Global Investors' (BGI) cash business in March 2008 so I had a bit of a baptism of fire. Nothing brings a business together like going through volatile market conditions and you fast track your learning by partnering with clients through those times. Whilst the circumstances of 2020 were very different to the Global Financial Crisis of 2008, at times the market volatility felt like we were repeating history. BlackRock acquired BGI in 2009 and the Money Market Fund (MMF) ranges and client relationships were very complementary in terms of bringing the two business together. BGI naturally had a bigger Sterling book, BlackRock had a larger Dollar footprint and the combined Euro assets brought much greater scale to our business.
MFI: Talk about the your recent changes. Milchem: I am really excited to be given the opportunity to run the EMEA Cash business at BlackRock as Peter Loehnert moves on internally to become the Head of our ETF and Index Investing business in APAC. Jason Horn will continue to head up our APAC Cash business and James Morek will expand his remit by taking responsibility for our cash distribution efforts in EMEA, APAC and LatAm. On the PM side, Matt Clay will continue to head up our European portfolio management group.
MFI: Are more comment letters coming? Milchem: I don't think we're done yet! The European Banking Authority has a consultation out at the moment which is due in October. But obviously key milestones for us are hearing back from the Financial Security Board (FSB) and European Security Markets Authority (ESMA) consultations we have already responded on. From a European regulatory perspective, the 5-year review period of some of the structures that came into effect in the 2017 MMF reforms is up next year. So, we always knew that we were going to have to go over some of the old ground again but now with a more focused lens.
Our main objective is to preserve the utility of money market funds for our investors. We believe MMFs are a vital cash management tool for many investors, providing high credit quality portfolios and crucial diversification that many would struggle to replicate. This utility is especially important while banks have limited appetite for overnight deposits and other alternatives are limited.
It's an advantage having such a fantastic partnership internally with our Global Public Policy Group. We have worked closely with them throughout the previous rounds of MMF reform and Joanna Cound, who heads our EMEA Public Policy team, was previously the Chief Operating Officer for BlackRock's Cash business in Europe. Having that depth of knowledge and expertise in the asset class really helps inform our narratives and consultation responses.
MFI: Tell us more about European regs? Milchem: In terms of formulating actual regulations, there is still work to be done. The ESMA Consultation will advise the European Commission on the upcoming review in 2022. Any legislation will need to be proposed by the Commission and approved by the Council of the European Union and the European Parliament before coming into effect and there will be a timeline for implementation so regulatory changes in Europe are realistically at least a few years from taking effect.
What comes through in many of the consultation responses is the fact that if we don't address the fundamental structural issues with the short term markets, we're not going to enhance market stability. MMF are just one part of the ecosystem and without addressing the root cause, we believe these risks will still exist.
MFI: Is there a consensus forming? Milchem: I think everyone recognizes that the last round of reforms made MMFs more resilient. Whilst I don't want to predict what global regulators might do at this stage, there are some very sensible options being discussed that would address some of the challenges faced by funds last year. In our mind, the key issue is ensuring that MMFs have robust and useable liquidity levels, which is how MMFs meet redemptions. The proposal to decouple fees and gates would be a resiliency-enhancing reform for MMFs because it would reduce the risk of pre-emptive redemptions related to minimum liquidity thresholds and reduce the need to sharply increase the liquidity profile of MMFs during times of heightened redemption pressure.
MFI: What are your biggest challenges? Milchem: Let's face it, effectively managing liquidity can be difficult. With reforms by the banking regulators, it has made it even more complicated for investors. We continue to see growth in MMFs as a tool for investors because they often cannot replicate the scale and the benefits offered by these funds. I see more and more clients coming to us for outsourced credit expertise alongside the ability to manage large flows in a market that is more challenged than it has ever been before. We want to ensure that regulators fully consider the impact to Short Term Funding Markets (STFMs) and broader financial stability if certain MMFs were to be banned (either directly or indirectly through reforms that make them unviable or unattractive to investors). Investors would then be forced to look elsewhere and to potentially riskier, less regulated products or become direct investors in the STFMs themselves. We don't feel any of these options are a substitute for MMFs. We believe it is likely that not only would investors end up with sub-optimal cash/liquidity management tools but the overall STFMs would be less transparent and likely less resilient.
MFI: Talk about your customer base. Milchem: When we went through implementing the 2017 reforms in Europe, we wanted to have a range of products for investors to choose from across the available structures. We've done that and we have created new products so that we have GBP, EUR and USD options that fit in each of the categories in both the short-term and standard money market spectrum. The scale of our fund range means that investors can choose to diversify across different types of products to meet their own investment goals and priorities.
Over the years, as we've seen cash investing become more difficult, we've also seen greater diversification in terms of the types of clients using money market funds. When the ECB introduced negative interest rates in 2014, there were some commentators who suggested that EUR MMF would cease to exist as yields went negative. Whilst there were initial outflows, we believed the value proposition of a MMF would continue to hold in a negative yield environment and the AUM in EUR funds today is a testament to this. Many of the relationships we work with haven't changed their investment policies because they believe MMFs are the best place for them to be to meet their cash objectives.
MFI: Are ultra-shorts still popular? Milchem: The prevailing yield environment encourages clients to think about cash segmentation strategies. When we talk to clients about Ultra Short products, it's really providing education about how these products work, what sort of additional risks they may be taking and making sure it's the right strategy for them. At BlackRock, our Standard MMF range in Europe sits within Cash from a portfolio management and credit perspective. The funds will typically take a little bit longer duration but are still designed with capital preservation in mind.
Our Standard MMFs are designed for investments with a timeline of greater than 3 months. Because of the nature of the way we invest these funds, we are typically doing things that are similar to Short Term MMFs, but we're investing 4 or 5 months longer on average. There will also be a little more flexibility in some of the credit that we can take.
When you go through periods of low or negative yields, there are a lot of clients that will stick to their policy as it has been tested through time. But you do find some other clients that are willing to tear up the rule book a little bit and look at what else is out there. What you normally end up coming back to is the fact that fundamentally, from an investment policy perspective, liquidity and low volatility of capital tends to be paramount to all of these investors. Knowing that these funds are managed by the same asset teams within BlackRock really resonates as well.
Once you move outside the Short Term MMF space, there is a lot more diversity in terms of product offerings and we have definitely seen an increased appetite for these types of products. We always recommend that investors look under the hood and understand the mechanics of what is different in these funds versus the traditional MMFs they use for day-to-day needs.
MFI: What about the future of MMFs? Milchem: Ultimately, clients need cash. They need liquidity. I think one thing that is common across all our client bases these days is that clients' resources are scarce. So being able to outsource to a trusted partner in the liquidity management space is key for them as they go about their working lives. I don't see this trend changing and therefore MMF reform is paramount for me in terms of being there for investors.
Also, in terms of strategy, sustainability is a key focus for many investors in Europe. We've successfully launched some dedicated products in this space but we have also implemented processes on our side that are embedded across the entire cash platform. At the moment, different geographical jurisdictions have different demands. But overall we are seeing a fundamental shift and I am personally excited to play a part in this and help evolve the short term investment landscape with our clients.
A press release entitled, "Loop Capital and Goldman Sachs Announce Cash Management Solution to Advance Racial Equity and Build Diverse Talent," tells us, "Clients of Black-led financial services firm Loop Capital and Goldman Sachs will have access to new money market fund share classes that will help fund scholarships for Black women; Google made a $500 million catalytic seed investment and played a foundational role in developing the fund." (See last week's Crane Data's Sept. 15 News, "BlackRock Converts Fed Trust to Social MMF; CastleOak Expands Team.")
It explains, "Loop Capital Markets, a Black-led investment bank, brokerage and advisory firm, and Goldman Sachs announced today a partnership to offer cash management solutions that will allow companies to advance racial equity by creating economic opportunity within diverse communities and providing funding for educational and career development for Black women in science, technology, engineering, mathematics (STEM) and related fields."
The release explains, "The two money market fund share class offerings will be available exclusively to clients of Loop Capital and Goldman Sachs and a portion of the revenue from the share classes will go to causes that have an impact on increasing racial equity. The Loop Capital share classes will be offered as part of the Goldman Sachs Financial Square Government Fund (LEIXX) and Goldman Sachs Financial Square Treasury Instruments Fund (LDIXX), which are Goldman Sachs Asset Management's two largest US money market funds. Google has made a $500 million catalytic seed investment in the funds and played a foundational role in developing the fund."
Kourtney Gibson, President of Loop Capital Markets, says, "We are delighted to have partnered with Goldman Sachs and Google on this important initiative. This launch creates a partnership for corporations to use the cash on their balance sheets to further opportunities for Black women and have a real, lasting impact on communities far and wide."
Goldman's statement continues, "The partnership will ensure the products play a role in promoting racial equity in financial services and beyond as part of Goldman Sachs' One Million Black Women initiative, a $10 billion investment strategy alongside $100 million in philanthropic support to help narrow opportunity gaps and positively impact the lives of at least one million Black women over the next decade."
Margaret Anadu, Global Head of Sustainability and Impact for Goldman Sachs Asset Management, comments, "This launch with Google demonstrates our shared commitment to both partner with organizations like Loop Capital that are led by Black women and to create commercial solutions to advance racial equity. Rooted in our belief that diversity is foundational to success, this partnership will create opportunities for young Black women pursuing careers in STEM and related fields, aligning directly with our One Million Black Women initiative."
The release adds, "Loop Capital and Goldman Sachs will make an annual donation from the net revenue they earn from the share classes to fund organizations creating opportunities for Black women, including funding educational and career development. Scholarship recipients will also be provided with access to comprehensive training, networking opportunities, career coaching and mentoring."
Juan Rajlin, Corporate Treasurer for Alphabet and Google states, "We're proud to be at the forefront of incorporating responsible investing into the money market fund ecosystem, translating our racial equity commitments into lasting and meaningful change. This share class, distributed by Loop Capital, will create economic opportunity within diverse communities and promote educational and career development for Black women in STEM. We hope to inspire other corporates to invest in these types of opportunities to make a positive impact."
The release also says, "The new share classes build upon Goldman Sachs' commitment to furthering its relationship with diverse broker-dealers, including veteran- and female-led firms, most recently R. Seelaus as well as Drexel Hamilton. In 2018, Goldman Sachs Asset Management became the first investment manager to offer a money market fund with a trading strategy that seeks to place purchase orders for portfolio transactions with women-, minority- and veteran-owned broker-dealers, subject to Goldman Sachs' duty to seek best execution for fund orders."
Finally, they write, "Google is committed to helping create sustainable equity and economic opportunity for all. This investment builds upon more than $320 million it has committed to organizations working to address racial inequities, including Google's partnership with Opportunity Finance Network to support CDFIs, and prior investments in money market funds distributed by diverse-led CDFIs and minority depository institutions (MDIs)."
For more on ESG and Social MMFs, see these recent Crane Data News stories: "BlackRock Converts Fed Trust to Social MMF; CastleOak Expands Team (9/15/21), "BlackRock Expands ESG Lineup; Files for New Bancroft, Cabrera Shares (8/19/21), "Northern Renames Diversity Shares Siebert Williams; Safened Platform (4/20/21); "Morgan Stanley Files for CastleOak Shares; Bond Fund Symposium Today" (3/25/21); "JP Morgan Launches "Empower" Share Class to Support Minority Banks" (2/24/21); "Invesco Files for Cavu Secs Class" (12/18/20); "ESG and Social MMF Update: Mischler News, Green Deposits, Reg Debate" (12/4/20); "Goldman Launches Social Class; Tiedemann Adds FICA; CS Green ABCP" (1/24/20); "Mischler Financial Joins "Impact" or Social Money Market Investing Wave" (12/5/19); and "Dreyfus Launches "Impact" or Diversity Government Money Market Fund" (11/21/19). (Let us know if you'd like to see our listing of ESG and Social money market funds too.)
Crane Data's latest MFI International shows that assets in European or "offshore" money market mutual funds inched lower over the past 30 days to $1.016 trillion, following a small decline the prior month too. These U.S.-style funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, decreased by $9.4 billion over the last 30 days (through 9/15); they're down $43.4 billion (-4.1%) year-to-date. Offshore US Dollar money funds are up $2.2 billion over the last 30 days but are down $17.6 billion YTD to $518.1 billion. Euro funds are down E5.0 billion over the past month, and YTD they're down E19.4 billion to E138.0 billion. GBP money funds have fallen by L863 million over 30 days, and are down by L14.3 billion YTD to L242.3B. U.S. Dollar (USD) money funds (192) account for half (51.0%) of the "European" money fund total, while Euro (EUR) money funds (94) make up 16.0% and Pound Sterling (GBP) funds (116) total 33.0%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Wednesday), below. (Note: We're still taking registrations for next week's Money Fund Symposium for those bold enough to gather in person! We look forward to seeing some of you in Philadelphia, Sept 21-23!)
Offshore USD MMFs yield 0.02% (7-Day) on average (as of 9/15/21), down from 0.05% on 12/31/20, 1.59% on 12/31/19 and 2.29% on 12/31/18. EUR MMFs yield -0.66% on average, compared to -0.71% at year-end 2020, -0.59% at year-end 2019 and -0.49% at year-end 2018. Meanwhile, GBP MMFs yielded 0.01%, up from 0.00% on 12/31/20, down from 0.64% on 12/31/19 and 0.64% on 12/31/18. (See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)
Crane's August MFII Portfolio Holdings, with data as of 8/31/21, show that European-domiciled US Dollar MMFs, on average, consist of 26% in Commercial Paper (CP), 15% in Certificates of Deposit (CDs), 18% in Repo, 23% in Treasury securities, 17% in Other securities (primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 37.9% of their portfolios maturing Overnight, 9.2% maturing in 2-7 Days, 11.1% maturing in 8-30 Days, 12.6% maturing in 31-60 Days, 10.3% maturing in 61-90 Days, 12.8% maturing in 91-180 Days and 6.2% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (35.0%), France (16.6%), Canada (9.3%), Japan (8.1%), Sweden (5.3%), the U.K. (4.6%), the Netherlands (3.3%), Germany (3.1%), Australia (3.0%) and Belgium (2.2%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $163.8 billion (23.5% of total assets), BNP Paribas with $20.7B (4.2%), Credit Agricole with $18.8B (3.9%), Mizuho Corporate Bank with $13.4B (2.7%), RBC with $12.2B (1.9%), Skandinaviska Enskilda Banken AB with $12.1B (1.8%), KBC Group with $12.0B (1.8%), Societe Generale with $11.8B (2.3%), Fixed Income Clearing Corp with $10.7B (1.5%) and Nordea Bank with $10.6B (1.2%).
Euro MMFs tracked by Crane Data contain, on average 39% in CP, 18% in CDs, 29% in Other (primarily Time Deposits), 7% in Repo, 6% in Treasuries and 1% in Agency securities. EUR funds have on average 31.3% of their portfolios maturing Overnight, 6.9% maturing in 2-7 Days, 15.0% maturing in 8-30 Days, 15.6% maturing in 31-60 Days, 12.2% maturing in 61-90 Days, 15.7% maturing in 91-180 Days and 3.4% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (35.2%), the U.S. (10.6%), Japan (9.6%), Germany (8.2%), Sweden (6.8%), Switzerland (5.1%), Canada (4.9%), Belgium (4.1%), the U.K. (4.0%) and the Netherlands (2.0%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E11.6B (7.1%), BNP Paribas with E7.2B (4.5%), Societe Generale with E5.9B (3.4%), Republic of France with E5.1B (7.9%), Zürcher Kantonalbank with E4.5B (2.5%), JP Morgan with E4.2B (2.3%), Nordea Bank with E4.1B (2.8%), Citi with E4.0B (2.3%), Mizuho Corporate Bank with E4.0B (3.4%) and Natixis with E3.9B (2.6%).
The GBP funds tracked by MFI International contain, on average (as of 8/31/21): 29% in CDs, 22% in CP, 25% in Other (Time Deposits), 17% in Repo, 7% in Treasury and 0% in Agency. Sterling funds have on average 38.2% of their portfolios maturing Overnight, 7.8% maturing in 2-7 Days, 8.8% maturing in 8-30 Days, 13.8% maturing in 31-60 Days, 9.7% maturing in 61-90 Days, 17.1% maturing in 91-180 Days and 4.6% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (19.9%), the U.K. (18.5%), Japan (15.0%), Canada (10.5%), the U.S. (5.1%), Australia (4.5%), the Netherlands (4.3%), Sweden (4.3%), Germany (3.3%) and Belgium (3.2%).
The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L20.2B (9.6%), Mizuho Corporate Bank Ltd with L10.5B (4.9%), Mitsubishi UFJ Financial Group Inc with L7.9B (3.1%), Sumitomo Mitsui Banking Corp with L7.3B (3.0%), BNP Paribas with L7.1B (3.8%), Toronto Dominion with L6.9B (3.0%), RBC with L6.7B (3.0%), BPCE SA with L6.3B (3.8%), Credit Agricole with L5.9B (3.0%) and Barclays with 5.6B (4.0%).
In related news, ICI also released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (For more, see our Sept. 13 News, "Sept. MF Portfolio Holdings: Repos Tie T-Bills as Largest MF Segment")
Their MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in August, prime money market funds held 31.7 percent of their portfolios in daily liquid assets and 48.6 percent in weekly liquid assets, while government money market funds held 81.3 percent of their portfolios in daily liquid assets and 89.8 percent in weekly liquid assets." Prime DLA was up from 33.7% in July, and Prime WLA increased from 49.4%. Govt MMFs' DLA increased from 81.9% in July and Govt WLA increased from 90.2% from the previous month.
ICI explains, "At the end of August, prime funds had a weighted average maturity (WAM) of 43 days and a weighted average life (WAL) of 61 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 36 days and a WAL of 83 days." Prime WAMs were two days lower than July, while WALs were unchanged from the previous month. Govt WAMs and WALs were one day and two days lower from July, respectively.
Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas declined from $187.85 billion in July to $185.34 billion in August. Government money market funds' holdings attributable to the Americas rose from $3,509.32 billion in July to $3,567.89 billion in August."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $185.3 billion, or 39.2%; Asia and Pacific at $86.4 billion, or 18.3%; Europe at $195.0 billion, or 41.2%; and, Other (including Supranational) at $6.1 billion, or 1.3%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.568 trillion, or 89.4%; Asia and Pacific at $132.9 billion, or 3.3%; Europe at $275.7 billion, 6.9%, and Other (Including Supranational) at $13.2 billion, or 0.3%."
The September issue of our Bond Fund Intelligence, which was sent to subscribers Wednesday morning, features the lead story, "BlackRock, IHS Markit on Bond ETFs for Portfolio Managers," which reviews a recent webinar discussing ETFs in portfolio construction; and "TCW's Rivelle Stepping Down Says WSJ, MetWest Filing," which quotes from a recent WSJ story and filing on changes at TCW. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns inched lower in August while yields rose. We excerpt from the new issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data. Also, watch for plenty of Ultra-Short Bond Fund content at next week's Money Fund Symposium, which takes place live Sept. 21-23 in Philadelphia.)
BFI's "ETF" piece reads, "A webinar entitled, 'Shifting the Course on Bond Portfolios: The Growth and Role of ETFs in Portfolio Construction,' sponsored by iShares and IHS Markit, explains in its overview, 'The global bond market is both massive in size and yet highly fragmented. According to SIFMA, the size of the global bond market was nearly $120 trillion as of Q1 2021 with hundreds of thousands of individual securities. Historically, fixed income portfolio construction involves creating strategies at the security level, buying and selling potentially hundreds or even thousands of individual bonds."
It says, "Bond ETFs are transforming the way fixed income portfolio managers construct bond portfolios and manage risk. Increasingly, these investors -- whether asset managers, asset owners, or insurers -- are using ETFs for a range of uses to complement individual bonds. Hear from IHS Markit and BlackRock experts on how fixed income ETFs are increasingly becoming an effective tool for portfolio managers." The webinar features Salman Zaidi, Fixed Income Product Strategist at BlackRock, and Nick Godec, Indices Product Management for IHS Markit."
The TCW article discusses The Wall Street Journal piece, 'TCW's Investment Chief and CEO Set Departures After Employees Threaten to Quit.' It comments, "Bond giant TCW Group Inc. is parting ways with two of its top executives after key employees threatened to quit the firm earlier this year. TCW said Wednesday that Tad Rivelle, who ran the firm's bond-investing business, would retire at the end of the year. TCW's chief executive, David Lippman, is expected to leave after his current contract expires in Dec. 2022, people familiar with the matter said."
The Journal explains, "Steve Kane and Bryan Whalen will succeed Mr. Rivelle as investment chiefs for the firm's fixed-income division, TCW wrote Wednesday in a note to clients. Messrs. Kane and Whalen, along with Laird Landmann, will remain portfolio managers, the firm said. Patrick Moore, who runs TCW's client-services group, and Mr. Kane told colleagues earlier this year they planned to resign in part over longstanding squabbles between the firm's senior leaders, including Messrs. Rivelle, Lippman and Landmann. They rescinded their resignations after the firm assured them they would soon act on a succession plan that had been in the works for some time."
A News brief, "Returns Dip, Yields Up in August," explains, "Bond fund returns fell slightly and yields inched higher last month. Our BFI Total Index fell -0.01% for 1-month but rose 3.17% for 12 months. The BFI 100 rose 0.00% in August and 3.09% over 1 year. Our BFI Conservative Ultra-Short Index was up 0.03% for 1-mo and 0.36% for 1-yr; Ultra-Shorts averaged 0.00% and 1.07%, respectively. Short-Term increased 0.04% and rose 2.12%, and Intm-Term fell -0.10% in August but rose 2.05% over 1-year. BFI's Long-Term Index fell -0.01% in August but gained 2.11% over 1-year. Our High Yield Index rose 0.43% in Aug. and 8.81% over 1-year."
Another News brief, "Fitch Ratings on European Bond Funds," says, "Their latest 'European Short-Term Bond Fund Dashboard: September 2021,' explains, "European short-term bond funds (STBFs) have diverse risk profiles in terms of portfolio credit quality and sector allocation, says Fitch Ratings. Fitch primarily defines STBFs as funds with a target duration of one to three years. Fitch counted 628 such funds in Europe as of end-1H21 with combined assets under management (AUM) of EUR337 billion. Traditional money market fund (MMF) investors increasingly have been considering STBFs as part of cash segmentation strategies in response to prolonged low or negative rates."
A sidebar "Barron's on Pax High Yield," explains, "Barron's recently featured an article entitled, 'A High-Yield Bond Fund Says Goodbye to Fossil Fuels,' which profiles Pax High Yield Bond Fund. They write, 'It might be a surprise to some investors that not all environmentally oriented mutual funds are free of traditional fossil-fuel companies. But the Pax High Yield Bond fund is living up to its ESG -- environmental, social, and governance -- mandate when it comes to energy."
Finally, a sidebar entitled, "Bonds & ETFs Approach $7T," tells readers, "Bond funds and ETFs continue to see strong inflows, and they show no signs of slowing or stopping. Combined, they should break the $7 trillion asset level in coming months. Last month they totaled $6.742 trillion. ICI's 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' says, 'Bond funds had estimated inflows of $14.20 billion for the week, compared to estimated inflows of $12.38 billion during the previous week.' ... Over the past 5 weeks, bond funds and bond ETFs have seen inflows of $59.8 billion."
Two recent press releases reflect the growing interest by fund managers and investors in ESG, Social and/or D&I money market mutual funds and trading. The first is, "BlackRock Partners with the Thurgood Marshall College Fund to Benefit Students at Historically Black Colleges and Universities, while the second is "CastleOak Securities Expands Money Fund Solutions Team." BlackRock's release, subtitled, "Global leaders in technology, financial services and consumer goods will pioneer growth of socially aware money market fund," explains, "BlackRock announced it will partner with the Thurgood Marshall College Fund ('TMCF') to support students of Historically Black Colleges and Universities ('HBCUs') and Predominantly Black Institutions ('PBIs') in their journey to college and into upwardly-mobile careers. TMCF ... will receive an annual contribution from BlackRock, which will represent a portion of net revenue from BlackRock's management fee for the BlackRock Liquid Federal Trust Fund ('BLFT'). BLFT is a government money market fund designed for investors seeking to further positive social outcomes through their cash management. Several notable firms have committed as investors or distributors of BLFT, including Bank of America, BNY Mellon, Capital One, The Coca-Cola Company, Google, Jefferies, Lyft, and Verizon."
Dr. Harry L. Williams, President and CEO of TMCF, says, "We are proud to partner with an industry leader like BlackRock and applaud them for this initiative. The funding from this partnership will enable more talented minority students to gain access to life-changing opportunities: from financial support for a premier college education, to unparalleled leadership guidance and career development." The release tells us, "BlackRock's annual contribution to TMCF is one of a series of initiatives planned for the partnership."
The release states, "As previously announced, BLFT is now seeking to place a portion of the aggregate dollar volume of purchase orders for its portfolio securities with diverse broker-dealers, subject to best execution requirements, and is seeking to establish dedicated share classes for certain minority-owned firms."
Eion D'Anjou, Portfolio Manager in BlackRock's Cash Management Group for BLFT, comments, "BlackRock's support of TMCF will help break down structural barriers to high-potential careers for students of HBCUs and PBIs, while BLFT's partnerships with minority, women, and/or disabled veteran owned broker-dealers will help strengthen those businesses. We are pleased to play a part in helping transform the futures of diverse students, business owners, and our community."
The press release also tells us, "BlackRock believes BLFT's commitment to diverse broker-dealers will help accelerate the growth of this segment. Mischler Financial Group, the securities industry's first minority-certified broker-dealer owned and operated by Service-Disabled Veterans (SDVs), is among the dealers for whom BLFT is seeking to establish dedicated share classes, and will also be a participant in the fund's diverse broker-dealer program."
La-Yona Rauls says, "Mischler Financial is proud to partner with BlackRock on this socially-aware initiative that seeks to bring together the institutional relationships of Mischler and the investment experience of BlackRock Cash Management.... Through BlackRock's targeted support for HBCU and PBI students, this partnership has the potential to transform lives through education and career development opportunities."
BlackRock explains, "BLFT's AUM has grown by over 25% since the announcement of its socially aware goals, thanks to the strong engagement of prestigious investors and partners." The fund is available to Bank of America institutional clients through their Global Liquidity Investment Solutions portal and Global Custody platform. It also is available on BNY Mellon's LiquidityDirect online money fund trading portal.
Tom Callahan, Global Head of BlackRock's Cash Management Business, adds, "BLFT represents an opportunity for our clients to do more with their cash by advancing positive social outcomes. We're honored that some of the world's largest cash investors have entrusted BlackRock Cash Management as their partner -- not only to manage their liquidity needs, but also to share in our commitment to support our nation's diverse youth." (Note: Callahan will co-keynote next week's Money Fund Symposium in Philadelphia. He speaks on Sept. 21.)
The "CastleOak Securities Expands" release explains, "CastleOak Securities, L.P., a leading New York-based boutique investment banking firm, announced the hiring of Kevin Ronan and Daniel Deighan to its Money Fund Solutions team. Ronan joins the team as Managing Director and Head of the Group after a 30-year career at Bank of New York Mellon, where he helped found, grow and lead their money market team. Deighan joins as a Vice President and brings 5 years of front-end product experience at BNY Mellon and Citibank."
David R. Jones, President and CEO of CastleOak Securities, comments, "Kevin is an industry veteran whose reputation precedes him. We are excited about having a leader of his caliber and know our clients will benefit from his experience and advice.... Adding Kevin and Dan to our team signals our strong commitment to building this business and how much we believe in our value-added Money Fund Solutions products."
CastleOak's Money Fund Solutions team currently has two signature products: its Money Fund Access portal product and its Share Class offering. Both products are designed to provide cash management solutions that are designed to help clients meet their cash investment goals while supporting their D&I efforts in a transparent and meaningful way."
Ronan adds, "The chance to build a business on the strength of this platform is exciting.... CastleOak can offer its clients the best of both worlds -- strong institutional relationships and marquis investment solutions from industry leading firms."
Wells Fargo Money Market Funds' most recent "Portfolio Manager Commentary" discusses money fund yields, the Fed's repo program, and the Treasury debt ceiling. It tells us, "With the FOMC firmly on hold and the market awash in excess cash from monetary and fiscal stimulus, prime money market yields continued to tread water in August. The one-month versus three-month LIBOR spread entered the month of August +3.41 basis points ... and ended the month at +3.71 bps. This backdrop is favorable for risk assets as front-end rates continue to be predictable and maintained at an advantageous level for economic growth."
Wells explains, "Government yields across the curve have been near zero, or now 0.05%, for quite some time (see government sector commentary below). Except for the maturities around the debt ceiling time frame that have seen yields spike a couple of basis points, in general, prime assets continue to marginally out-yield government assets.... The current pickup from extending maturities from one month to three months is roughly 4 bps and yields about 7 bps more than the government floor. In addition, the pickup from extending maturities from one month to six months has narrowed to 7 bps this month and yields approximately 10 bps more than the government floor."
Authors Jeff Weaver, Laurie White, et. al., write, "While we are keeping excess liquidity over the stated regulatory requirements and running shorter weighted average maturities, we are actively seeking opportunities to extend if the opportunity offers a favorable risk/reward proposition. In addition to allowing us to selectively add securities to lock in higher yields when the opportunity arises, this higher liquidity buffer also enhances our ability to meet the liquidity needs of our investors and helps stabilize net asset value (NAV) volatility."
Wells piece continues, "With the recent resolution of some structural uncertainties, the rough outlines of the government money markets are now in place for this current zero-interest-rate-policy episode. Wrinkles may pop up from time to time, such as the debt ceiling (more on that below), but generally speaking, the Fed's reverse repo program (RRP) rate of 0.05% exerts an immense gravitational pull on all short-term government rates, keeping them from straying too far in either direction. The RRP is a giant sponge sopping up the excess of cash over investable assets in the short-term space, and it has recently rather routinely taken in more than $1 trillion per day, a huge change from six or even three months ago."
It adds, "The structural clarity mentioned above concerned three main developments. First, the Fed adjusted its RRP rate from 0.00% to 0.05% in June, buying itself a little breathing room above its interest rate floor at zero. Second, the extra cash the Treasury carried throughout the pandemic has been wound down, with the Treasury's General Account (TGA) completing a round trip from $400 billion to $1.8 trillion and back. The Treasury has necessarily overshot the drawdown and intends to eventually, once the debt ceiling has been addressed, carry a cash balance closer to $800 billion. And third, Treasury bill (T-bill) supply has declined by $901 billion this year, which has helped bring the TGA down and also shifted the government's funding burden from T-bills to Treasury coupons further out the curve."
On the debt ceiling, Wells comments, "Every few years, the front end of the yield curve gets to do the debt ceiling dance, and the band is currently warming up. For details on the debt ceiling's history and potential impacts on the money markets, please see our Debt Ceiling FAQs.... Markets have begun to show a bit of unease, as T-bills maturing near the area of the calendar where the Treasury may run out of money -- the perceived drop-dead date -- have backed up in yield slightly.... One way or another, whether it is raised or suspended again, the debt ceiling issue is likely to be resolved in the next few months, and the market can settle back into its 0.05% straightjacket. There may be a brief period of indigestion while the Treasury ramps its cash balance back up via T-bill issuance, but it seems like nothing the extra trillion dollars sitting in the RRP can't handle."
In other news, the Federal Deposit Insurance Corporation released its latest "FDIC Quarterly Banking Profile," which says, "The average net interest margin contracted 31 basis points from a year ago to 2.50 percent -- the lowest level on record. The contraction is due to the year-over-year reduction in earning asset yields (down 53 basis points to 2.68 percent) outpacing the decline in average funding costs (down 22 basis points to 0.18 percent). Both ratios declined from first quarter 2021 to record lows. Aggregate net interest income declined $2.2 billion (1.7 percent) from second quarter 2020. Reductions in net interest income at the largest institutions drove the aggregate decline in net interest income, as more than three fifths of all banks (64.1 percent) reported higher net interest income compared with a year ago."
The update continues, "Deposits grew $271.9 billion (1.5 percent) in second quarter, down from the growth rate of 3.6 percent reported in first quarter 2021. The deposit growth rate in second quarter is near the long-run average growth rate of 1.2 percent. Deposits above $250,000 continued to drive the quarterly increase (up $297.8 billion, or 3.1 percent) and offset a decline in deposits below $250,000 (down $53.6 billion, or 0.7 percent). Noninterest-bearing deposit growth (up $175 billion, or 3.5 percent) continued to outpace that of interest-bearing deposits (up $53.3 billion, or 0.4 percent), with more than half of banks (57.3 percent) reporting higher noninterest-bearing deposit balances compared with the previous quarter."
A press release entitled, "FDIC-Insured Institutions Reported Net Income of $70.4 Billion in Second Quarter 2021" explains, "Reports from the 4,951 commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reflect aggregate net income of $70.4 billion in second quarter 2021, an increase of $51.9 billion (281 percent) from a year ago. This increase was driven by further economic growth and improved credit conditions, which led to a second consecutive quarter of aggregate negative provision expense. These and other financial results for second quarter 2021 are included in the FDIC's latest Quarterly Banking Profile released today."
It quotes FDIC Chairman, Jelena McWilliams, "Overall, the banking industry remains strong. Revenue has increased along with stronger economic growth and improved credit conditions. The banking industry remains well positioned to support the country's lending needs as the economy continues to recover from the pandemic, with record deposits, favorable credit quality, and strong capital levels. However, low interest rates and modest loan demand will likely continue to present challenges for the banking industry in the near term. Further, the banking industry may face additional challenges as pandemic support programs for borrowers wind down and loan forbearance periods end."
Crane Data's September Money Fund Portfolio Holdings, with data as of August 31, 2021, show yet another jump in Repo and plunge in Treasury holdings. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $47.4 billion to $4.879 trillion in August, after falling $89.1 billion in July, but rising $1.5 billion in June, $30.2 billion in May and $29.1 billion in April. Treasury securities remained the largest portfolio segment (barely), but Repo is now almost tied for the No. 1 spot. MMF holdings of Fed repo rose to over $1.0 trillion. Agencies were the third largest segment, CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Note: We're still a go for next week's Money Fund Symposium in Philadelphia, Sept. 21-23! Registrations are still being taken if you're vaccinated and not afraid of meeting in person. We look forward to seeing many of you next week!)
Among taxable money funds, Treasury securities plummeted $113.8 billion (-5.5%) to $1.943 trillion, or 39.8% of holdings, after falling $200.6 billion in July, $134.5 billion in June and $135.0 billion in May. Repurchase Agreements (repo) jumped $169.6 billion (9.8%) to $1.908 trillion, or 39.1% of holdings, after rising $62.9 billion in July, $251.0 billion in June and $200.9 billion in May. Government Agency Debt was flat again (down $8.1 billion, or -1.5%) to $532.4 billion, or 10.9% of holdings, after rising $3.8 billion in July, but decreasing $26.7 billion in June and $22.7 billion in May. Repo, Treasuries and Agency holdings totaled $4.384 trillion, representing a massive 89.9% of all taxable holdings.
Money funds' holdings of CP, CDs and Other (mainly Time Deposits) were flat in August as Prime MMFs decreased TDs slightly, but increased CDs and CP a bit. Commercial Paper (CP) increased $3.2 billion (1.4%) to $238.4 billion, or 4.9% of holdings, after increasing $8.2 billion in July but decreasing $36.1 billion in June and $5.0 billion in May. Other holdings, primarily Time Deposits, declined by $4.7 billion (-3.8%) to $120.0 billion, or 2.5% of holdings (dipping below CDs), after jumping $39.9 billion in July, dropping $35.9 billion in June and dipping $5.4 billion in May. Certificates of Deposit (CDs) rose by $1.9 billion (1.5%) to $124.1 billion, or 2.5% of taxable assets, after dropping $1.5 billion in July, $14.9 billion in June and $3.7 billion in May. VRDNs decreased to $12.6 billion, or 0.3% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately late Monday.)
Prime money fund assets tracked by Crane Data fell to $851 billion, or 17.4% of taxable money funds' $4.879 trillion total. Among Prime money funds, CDs represent 14.6% (up from 14.2% a month ago), while Commercial Paper accounted for 27.7% (up from 27.4% in June). The CP totals are comprised of: Financial Company CP, which makes up 19.3% of total holdings, Asset-Backed CP, which accounts for 4.1%, and Non-Financial Company CP, which makes up 4.3%. Prime funds also hold 2.6% in US Govt Agency Debt, 11.5% in US Treasury Debt, 20.6% in US Treasury Repo, 2.6% in Other Instruments, 10.4% in Non-Negotiable Time Deposits, 5.8% in Other Repo, 2.6% in US Government Agency Repo and 0.7% in VRDNs.
Government money fund portfolios totaled $2.805 trillion (57.5% of all MMF assets), up from $2.742 trillion in July, while Treasury money fund assets totaled another $1.222 trillion (25.0%), down from $1.259 trillion the prior month. Government money fund portfolios were made up of 18.1% US Govt Agency Debt, 12.0% US Government Agency Repo, 34.2% US Treasury Debt, 35.2% in US Treasury Repo, 0.3% in Other Instruments. Treasury money funds were comprised of 72.5% US Treasury Debt and 27.5% in US Treasury Repo. Government and Treasury funds combined now total $4.027 trillion, or 82.5% of all taxable money fund assets.
European-affiliated holdings (including repo) decreased by $2.5 billion in August to $580.9 billion; their share of holdings fell to 11.9% from last month's 12.0%. Eurozone-affiliated holdings increased to $413.0 billion from last month's $409.6 billion; they account for 8.5% of overall taxable money fund holdings. Asia & Pacific related holdings decreased to $223.9 billion (4.6% of the total) from last month's $226.3 billion. Americas related holdings decreased to $4.070 trillion from last month’s $4.045 trillion, and now represent 83.4% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $195.0 billion, or 15.0%, to $1.499 trillion, or 30.7% of assets); US Government Agency Repurchase Agreements (down $21.5 billion, or -5.6%, to $359.1 billion, or 7.4% of total holdings), and Other Repurchase Agreements (down $4.0 billion, or -7.4%, from last month to $49.6 billion, or 1.0% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $1.1 billion to $166.4 billion, or 3.4% of assets), Asset Backed Commercial Paper (up $1.6 billion to $35.0 billion, or 0.7%), and Non-Financial Company Commercial Paper (up $0.6 billion to $37.0 billion, or 0.8%).
The 20 largest Issuers to taxable money market funds as of August 31, 2021, include: the US Treasury ($1.943 trillion, or 39.8%), Federal Reserve Bank of New York (1.047T, 21.5%), Federal Home Loan Bank ($268.0B, 5.5%), BNP Paribas ($107.2B, 2.2%), Fixed Income Clearing Corp ($104.3B, 2.1%), RBC ($95.3B, 2.0%), Federal Farm Credit Bank ($90.0B, 1.8%), Federal National Mortgage Association ($79.5B, 1.6%), JP Morgan ($66.2B, 1.4%), Sumitomo Mitsui Banking Co ($60.0B, 1.2%), Credit Agricole ($53.2B, 1.1%), Barclays PLC ($53.2B, 1.1%), Federal Home Loan Mortgage Corp ($51.4B, 1.1%), Bank of America ($45.8B, 0.9%), Mitsubishi UFJ Financial Group Inc ($44.5B, 0.9%), Societe Generale ($41.8B, 0.9%), Citi ($41.1B, 0.8%), Bank of Montreal ($34.7B, 0.7%), Canadian Imperial Bank of Commerce ($33.7B, 0.7%) and Toronto-Dominion Bank ($33.3B, 0.7%).
In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Federal Reserve Bank of New York ($1.006T, 52.8%), Fixed Income Clearing Corp ($104.3B, or 5.5%), BNP Paribas ($92.7B, or 4.9%), RBC ($76.1B, or 4.0%), JP Morgan ($61.0B, or 3.2%), Sumitomo Mitsui Banking Corp ($46.2B, or 2.4%), Bank of America ($42.9B, or 2.2%), Barclays ($39.0B, or 2.0%), Mitsubishi UFJ Financial Group Inc ($36.3B, or 1.9%) and Credit Agricole ($35.5B, or 1.9%). The largest users of the $1.006 trillion in Fed RRP included: Morgan Stanley Inst Liq Govt ($65.9B), JPMorgan US Govt MM ($60.0B), Fidelity Govt Money Market ($50.7B), Fidelity Govt Cash Reserves ($50.5B), Fidelity Cash Central Fund ($50.4B), Federated Hermes Govt ObI ($49.7B), BlackRock Lq FedFund ($48.5B), Fidelity Inv MM: Govt Port ($43.9B), Dreyfus Govt Cash Mgmt ($40.1B) and BlackRock Lq T-Fund ($36.0).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: RBC ($19.3B or 4.7%), Mizuho Corporate Bank Ltd ($17.9B or 4.3%), Credit Agricole ($17.8B or 4.3%), Toronto-Dominion Bank ($17.4B or 4.2%), Bank of Montreal ($15.8B or 3.8%), BNP Paribas ($14.5B or 3.5%), Canadian Imperial Bank of Commerce ($14.3B or 3.5%), Barclays PLC ($14.2B or 3.4%), DNB ASA ($13.9B or 3.4%) and Sumitomo Mitsui Banking Corp ($13.7B or 3.3%).
The 10 largest CD issuers include: Bank of Montreal ($12.5B or 10.1%), Sumitomo Mitsui Banking Corp ($9.7B or 7.8%), Canadian Imperial Bank of Commerce ($8.5B or 6.8%), Sumitomo Mitsui Trust Bank ($6.6B or 5.3%), Toronto-Dominion Bank ($5.5B or 4.4%), Mizuho Corporate Bank Ltd ($5.5B or 4.4%), Rabobank ($5.4B or 4.4%), Landesbank Baden-Wurttemberg ($4.9B or 3.9%), Natixis ($4.6B or 3.7%) and Mitsubishi UFJ Financial Group Inc ($4.5B or 3.7%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($12.8B or 6.3%), Toronto-Dominion Bank ($11.9B or 5.9%), BNP Paribas ($9.6B or 4.7%), Barclays PLC ($7.1B or 3.5%), DNB ASA ($6.2B or 3.1%), Societe Generale ($6.0B or 3.0%), National Australia Bank Ltd ($5.7B or 2.8%), Sumitomo Mitsui Trust Bank ($5.3B or 2.6%), JP Morgan ($5.1B or 2.5%) and Rabobank ($5.0B or 2.5%).
The largest increases among Issuers include: Federal Reserve Bank of New York (up $163.8B to $1,046.6B), Fixed Income Clearing Corp (up $27.2B to $104.3B), Societe Generale (up $5.4B to $41.8B), Banco Santander (up $4.6B to $12.0B), Sumitomo Mitsui Banking Corp (up $4.2B to $60.0B), Goldman Sachs (up $3.9B to $25.8B), Landesbank Baden-Wurttemberg (up $3.0B to $9.6B), Bank of Montreal (up $2.6B to $34.7B), DNB ASA (up $2.1B to $15.1B) and Swedbank AB (up $2.0B to $8.5B).
The largest decreases among Issuers of money market securities (including Repo) in August were shown by: the US Treasury (down $113.8B to $1,943.4), Federal Home Loan Bank (down $18.3B to $268.0B), BNP Paribas (down $7.1B to $107.2B), Citi (down $6.5B to $41.1B), JP Morgan (down $4.7B to $66.2B), Bank of America (down $2.6B to $45.8B), Credit Agricole (down $2.2B to $53.2B), Nordea Bank (down $2.1B to $9.3B), Barclays PLC (down $2.0B to $53.2) and Sumitomo Mitsui Trust Bank (down $1.7B to $15.7B).
The United States remained the largest segment of country-affiliations; it represents 78.8% of holdings, or $3.846 trillion. France (5.0%, $245.5B) was number two, and Canada (4.6%, $223.2B) was third. Japan (4.3%, $211.9B) occupied fourth place. The United Kingdom (2.0%, $97.7B) remained in fifth place. Germany (1.3%, $62.4B) was in sixth place, followed by The Netherlands (1.1%, $54.0B), Sweden (0.8%, $37.0B), Australia (0.6%, $28.4B) and Switzerland (0.3%, $16.7B). (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 August 31, 2021, Taxable money funds held 48.4% (up from 44.5%) of their assets in securities maturing Overnight, and another 8.7% maturing in 2-7 days (down from 10.9%). Thus, 57.1% in total matures in 1-7 days. Another 11.1% matures in 8-30 days, while 8.5% matures in 31-60 days. Note that over three-quarters, or 76.7% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 7.1% of taxable securities, while 13.1% matures in 91-180 days, and just 3.1% matures beyond 181 days. (Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)
Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Friday, and we'll be writing our regular monthly update on the August 31 data for Monday's News. But we also uploaded a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Thursday. (We continue to merge the two series, and the N-MFP version is now available via Holding file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of August 31, 2021 includes holdings information from 1,010 money funds (down 17 from last month), representing assets of $5.027 trillion (up from $4.977 trillion). Prime MMFs now total $863.4 billion, or 17.2% of the total. We review the new N-MFP data below, and we also look at our revised MMF expense data.
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Treasury holdings totaled $1.962 trillion (down from $2.072 trillion), or a massive 39.0% of all holdings. Repurchase Agreement (Repo) holdings in money market funds rose again to $1.960 trillion (up from $1.782 trillion), or 39.0% of all assets, and Government Agency securities totaled $504.8 billion (down from $524.2 billion), or 10.0%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.427 trillion, or a stunning 88.1% of all holdings.
Commercial paper (CP) totals $246.1 billion (up from $243.0 billion), or 4.9% of all holdings, and the Other category (primarily Time Deposits) totals $159.6 billion (down from $163.6 billion), or 3.2%. Certificates of Deposit (CDs) total $124.1 billion (up from $122.3 billion), 2.5%, and VRDNs account for $70.0 billion (down from $70.6 billion last month), or 1.4% of money fund securities.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $168.2 billion, or 3.3%, in Financial Company Commercial Paper; $35.0 billion or 0.7%, in Asset Backed Commercial Paper; and, $43.0 billion, or 0.9%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($1.551 trillion, or 30.9%), U.S. Govt Agency Repo ($359.0B, or 7.1%) and Other Repo ($49.6B, or 1.0%).
The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $241.7 billion (up from $238.3 billion), or 28.0%; Repo holdings of $247.9 billion (up from $231.4 billion), or 28.7%; Treasury holdings of $104.1 billion (down from $119.0 billion), or 12.1%; CD holdings of $124.1 billion (up from $122.3 billion), or 14.4%; Other (primarily Time Deposits) holdings of $112.5 billion (down from $121.7 billion), or 13.0%; Government Agency holdings of $26.5 billion (down from $31.3 billion), or 3.1% and VRDN holdings of $6.5 billion (down from $6.7 billion), or 0.8%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $168.2 billion (up from $167.0 billion), or 19.5%, in Financial Company Commercial Paper; $35.0 billion (up from $33.5 billion), or 4.0%, in Asset Backed Commercial Paper; and $38.5 billion (up from $37.9 billion), or 4.5%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($177.3 billion, or 20.5%), U.S. Govt Agency Repo ($21.1 billion, or 2.4%), and Other Repo ($49.5 billion, or 5.7%).
In other news, money fund charged expense ratios were flat again in August after hitting a record low of 0.06% in May and inching higher in June. Our Crane 100 Money Fund Index and Crane Money Fund Average both were 0.07% as of August 31, 2021. Crane Data revises its monthly expense data and gross yield information after the SEC updates its latest Form N-MFP data the morning of the 6th business day of the new month. (They posted this info Thursday morning, so we revised our monthly MFI XLS spreadsheet and historical craneindexes.xlsx averages file to reflect the latest expenses, gross yields, portfolio composition and maturity breakout yesterday.) Visit our "Content" page for the latest files, and see below for the review of the latest N-MFP Portfolio Holdings data.
Our Crane 100 Money Fund Index, a simple average of the 100 largest taxable money funds, shows an average charged expense ratio (Exp%) of 0.07%, the same as last month's level (and one bps higher than May's record low 0.06%). The average is down from 0.27% on Dec. 31, 2019, so we estimate that funds are waiving 20 bps, or 74% of normally charged expenses. The Crane Money Fund Average, a simple average of all taxable MMFs, also showed a charged expense ratio of 0.07% as of July 31, 2021, the same as the month prior but down from 0.40% at year-end 2019.
Prime Inst MFs expense ratios (annualized) now average 0.10% (down one basis point from last month), Government Inst MFs expenses average 0.05% (the same as the month prior), Treasury Inst MFs expenses average 0.05% (down one basis point from last month). Treasury Retail MFs expenses currently sit at 0.05%, (unchanged), Government Retail MFs expenses yield 0.05% (the same as in July). Prime Retail MF expenses are 0.12% (down one bps from the month prior). Tax-exempt expenses were up one basis point over the month to 0.06% on average.
Gross 7-day yields were unchanged on average for the month ended August 31, 2021. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 732), shows a 7-day gross yield of 0.08%, down one bps from the prior month. The Crane Money Fund Average is down 1.64% from 1.72% at the end of 2019. Our Crane 100's 7-day gross yield also was flat, ending the month at 0.09%, but down 1.66% from year-end 2019.
According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is approximately $3.501 billion (as of 8/31/21). Our estimated annualized revenue totals decreased from $3.616 last month but are up from a record low of $2.927 in May. MMF revenues fell from $6.028 trillion at the start of 2020 and $10.642 trillion at the start of 2019. Charged expenses and gross yields are driven by a number of variables, and the Fed's 0.05% floor on its RRP repo appears to have helped stabilize rates above zero. Nonetheless, severe fee waivers and heavy fee pressure should continue as long as the Fed keeps yields pinned close to the zero floor.
Crane Data's latest Money Fund Market Share rankings show assets increased across a majority of the largest U.S. money fund complexes in August. Money market fund assets increased $27.9 billion, or 0.6%, last month to $4.966 trillion. Assets have decreased by $94.7 billion, or -1.9%, over the past 3 months, and they've decreased by $25.2 billion, or -0.5%, over the past 12 months through August 31, 2021. The largest increases among the 25 largest managers last month were seen by Goldman Sachs, J.P. Morgan, Fidelity, Morgan Stanley and Dreyfus, which grew assets by $17.4 billion, $12.4B, $7.8B, $6.0B and $5.0B, respectively. The largest declines in August were seen by BlackRock, Federated Hermes, Wells Fargo and UBS, which decreased by $13.0 billion, $7.6B, $3.4B and $1.6B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals below, and we also look at money fund yields in August.
Over the past year through August 31, 2021, BlackRock (up $117.1B, or 28.0%), Morgan Stanley (up $75.3B, or 38.0%), First American (up $31.3B, or 30.7%), Dreyfus (up $28.4B, or 14.1%) and T. Rowe Price (up $12.1B, or 29.5%) were the largest gainers. Morgan Stanley, Goldman, Fidelity, Invesco and T. Rowe Price had the largest asset increases over the past 3 months, rising by $17.5B, $9.4B, $5.1B, $3.5B and $3.1B, respectively. The largest decliners over 12 months were seen by: Goldman Sachs (down $66.4B), Charles Schwab (down $53.0B), Federated Hermes (down $45.1B), Vanguard (down $31.5B) and American Funds (down $27.7B). The largest decliners over 3 months included: BlackRock (down $34.3B), Vanguard (down $24.8B), Federated (down $12.8B), American Funds (down $12.7B) and First American (down $10.2B).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $895.9 billion, or 18.0% of all assets. Fidelity was up $7.8B in August, up $5.1 billion over 3 mos., and down $24.4B over 12 months. BlackRock ranked second with $516.4 billion, or 10.4% market share (down $13.0B, down $34.3B and up $117.1B for the past 1-month, 3-mos. and 12-mos., respectively). JPMorgan moved up to third with $472.6 billion, or 9.5% market share (up $12.4B, down $1.2B and up $6.8B). Vanguard fell to fourth with $457.7 billion, or 9.2% of assets (up $384M, down $24.8B and down $31.5B for the past 1-month, 3-mos. and 12-mos.), while Goldman Sachs remained in fifth place with $366.4 billion, or 7.4% of assets (up $17.4B, up $9.4B and down $66.4B).
Federated Hermes was in sixth place with $323.7 billion, or 6.5% of assets (down $7.6B, down $12.8B and down $45.1B), while Morgan Stanley was in seventh place with $281.3 billion, or 5.7% (up $6.0B, up $17.5B and up $75.3B). Dreyfus ($238.9B, or 4.8%) was in eighth place (up $5.0B, up $3.0B and up $28.4B), followed by Wells Fargo ($197.7B, or 4.0%, down $3.4B, down $10.2B and down $6.9B). Northern was in 10th place ($179.6B, or 3.6%; up $711M, down $420M and down $10.3B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Schwab ($146.0B, or 2.9%), SSGA ($143.0B, or 2.9%), American Funds ($133.9B, or 2.7%), First American ($125.4B, or 2.5%), Invesco ($88.6B, or 1.8%), T. Rowe Price ($52.3B, or 1.1%), UBS ($48.2B, or 1.0%), HSBC ($37.1B, or 0.7%), DWS ($35.2B, or 0.7%) and Western ($33.3B, or 0.7%). Crane Data currently tracks 64 U.S. MMF managers, the same number as last month.
When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers are the same as the domestic list, except Goldman moves ahead of Vanguard to the No. 4 spot, Morgan Stanley moves ahead of Federated to the No. 6 spot, and Northern moves ahead of Wells for the No. 9 spot. Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore") products.
The largest Global money market fund families include: Fidelity ($908.6 billion), BlackRock ($712.9B), JP Morgan ($685.0B), Goldman Sachs ($483.6B) and Vanguard ($457.7B). Morgan Stanley ($339.6B) was sixth, Federated Hermes ($332.7B) was in seventh, followed by Dreyfus/BNY Mellon ($263.4B), Northern ($208.1B) and Wells Fargo ($198.1B), which round out the top 10. These totals include "offshore" U.S. Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into U.S. dollar totals.
The August issue of our Money Fund Intelligence and MFI XLS, with data as of 8/31/21, shows that yields were flat in August for our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 732), remained at 0.02% for the 7-Day Yield (annualized, net) Average, the 30-Day Yield also was flat at 0.02%. The MFA's Gross 7-Day Yield was flat at 0.09%, and the Gross 30-Day Yield was also flat at 0.09%.
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.02% (unchanged) and an average 30-Day Yield (also unchanged) at 0.02%. The Crane 100 shows a Gross 7-Day Yield of 0.09% (unch.), and a Gross 30-Day Yield of 0.09% (unch.). Our Prime Institutional MF Index (7-day) yielded 0.03% (unch.) as of August 31. The Crane Govt Inst Index remained at 0.02% and the Treasury Inst Index was unchanged at 0.01%. Thus, the spread between Prime funds and Treasury funds remains at two basis points, and the spread between Prime funds and Govt funds is one basis point. The Crane Prime Retail Index yielded 0.01% (unch), while the Govt Retail Index was 0.01% (unch.), the Treasury Retail Index was also 0.01% (unchanged from the month prior). The Crane Tax Exempt MF Index yielded 0.02% (down one bps) in August.
Gross 7-Day Yields for these indexes to end August were: Prime Inst 0.14% (unch.), Govt Inst 0.07% (unch.), Treasury Inst 0.07% (unch.), Prime Retail 0.14% (down one bp), Govt Retail 0.06% (unch.) and Treasury Retail 0.06% (unch.). The Crane Tax Exempt Index remained at 0.09%. The Crane 100 MF Index returned on average 0.00% over 1-month, 0.00% over 3-months, 0.01% YTD, 0.02% over the past 1-year, 1.00% over 3-years (annualized), 0.95% over 5-years, and 0.51% over 10-years.
The total number of funds, including taxable and tax-exempt, was down by 9 funds to 884. There are currently 732 taxable funds, down one from the previous month, and 152 tax-exempt money funds (down 8 from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.
The September issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Wednesday morning, features the articles: "FSB Comment Letters Show Consensus on Reforms Close," which discusses the latest feedback on reforms; "BlackRock's Beccy Milchem Talks European MMF Issues," which profiles the new Head of EMEA Cash; and, "More D&I Share Classes on the Way, But ESG Takes Hit," which recaps the latest news on diversity MMFs. We also sent out our MFI XLS spreadsheet Wednesday a.m., and have updated our Money Fund Wisdom database query system with 8/31/21 data. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our September Money Fund Portfolio Holdings are scheduled to ship on Friday, Sept. 10, and our September Bond Fund Intelligence is scheduled to go out next Wednesday, Sept. 15.
MFI's lead article says, "Discussions continue to heat up and evolve over changing regulations governing money market funds, both in the U.S. and globally. The latest chapter in the saga is the posting of comment letters in response to the Financial Stability Board's 'Policy proposals to enhance money market fund resilience: Consultation Report.' Forty letters were posted in response and we've been quoting and summarizing from them since the August 12 deadline for comments passed. We review the latest highlights below."
It continues, "The Wall Street Journal discusses the pending money fund reforms in its article, 'Firms Wary as Money-Market Rule Changes Studied After Covid-19 Run.' They tell us, 'Investment managers are fighting for the future of money-market funds.... [F]inancial regulators are weighing rule changes designed to ensure that these funds fare better in the next crisis."
Our "BlackRock's Milchem" piece reads, "This month, MFI interviews Rebecca Milchem, BlackRock's new Head of Cash for EMEA. BlackRock is the 2nd largest manager of money funds worldwide and the largest manager of Euro and Sterling MMFs. We discuss the latest regulatory discussions, European vs. U.S. issues, and a number of other topics below in our Q&A."
MFI asks, "Give us a little bit of history. Milchem tells us, "Looking back at the BGI (Barclays) and BlackRock [merger] ... BGI always had the bigger Sterling book [and] BlackRock had a much bigger Dollar footprint when we put the businesses together back in 2009.... They were very complementary. I joined the business in 2008 ... so I had a bit of a baptism of fire.... I think we feel like we've been repeating history the last in the last year in terms of the experience from 2008.... But nothing brings a business together like going through some volatile market conditions and learning through and working with clients through those times."
The "D&I" article tells readers, "While it's been relatively quiet in the Social and ESG money fund space, there were a couple of developments over the past month. The good news was that BlackRock filed to launch several more D&I dealer affiliated share classes, while the bad news was that The Wall Street Journal took a shot at DWS and Deutsche Bank for overstating and struggling to define its ESG efforts."
It adds, "BlackRock's new Form N-1A Registration Statement filings include: Bancroft Capital Shares for BlackRock Liquid Federal Trust Fund, Cabrera Capital Markets Shares for TempFund and BlackRock Liquid Federal Trust Fund, Mischler Financial Group Shares for BlackRock Liquid Federal Trust Fund and Bancroft Capital Shares for the BlackRock Liquid Environmentally Aware Fund (LEAF). BlackRock already offers ESG MMFs BlackRock LEAF Direct (LEDXX) and LEAF Inst (LEFXX); BlackRock Wealth LEAF Inv (PINXX) and Inst (PNIXX); and BlackRock Liquidity FedFund Mischler (HUAXX)."
MFI also includes the News brief, "MFs Higher in August, Dip on Week," which says, "Money fund assets increased by $27.9 billion in August to $4.968 trillion, according to our MFI XLS. This follows declines of $38.5 billion in July and $84.8 billion in June. ICI's latest 'Money Market Fund Assets' report shows MMFs down $17.2 billion to $4.509 trillion in the latest week. Year-to-date, ICI shows MMFs up $212 billion, or 4.9%."
Another News brief, "August Portfolio Holdings: Treasuries Plunge Again; Repo, TDs Jump," comments, "Crane Data's latest Money Fund Portfolio Holdings, with data as of July 31, 2021, show another increase in Repo holdings, a jump in Other (Time Deposits) and another plunge in Treasuries. Treasury securities remained the largest portfolio segment, though Repo is closing in on the No. 1 spot. Agencies were the third largest segment, CP remained fourth, ahead of Other/Time Deposits, CDs and VRDNs."
Our September MFI XLS, with August 31 data, shows total assets increased $27.9 billion to $4.968 trillion, after decreasing $12.4 billion in July and $73.0 billion in June. They increased $74.0 billion in May and $62.2 billion in April. Assets rose $151.0 billion in March, $30.8 billion in February and $5.6 billion in January. Assets decreased $6.7 billion in December, $11.7 billion in November, $46.8 billion in October and $121.2 billion in September. Our broad Crane Money Fund Average 7-Day Yield was flat at 0.02%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) also remained flat at 0.02%.
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both remained at 0.09%. Charged Expenses averaged 0.07% for the Crane MFA and the Crane 100. (We'll revise expenses Thursday once we upload the SEC's Form N-MFP data for 8/31.) The average WAM (weighted average maturity) for the Crane MFA was 37 days (unchanged) while the Crane 100 WAM fell one day to 36 days). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
Over the past several weeks, we've quoted from a number of comment letters to the Financial Stability Board in response to the FSB's "Policy proposals to enhance money market fund resilience: Consultation Report". These include statements from J.P. Morgan Asset Management, BlackRock, Fidelity, Federated Hermes, Charles Schwab, BNY Mellon, Vanguard and SSGA, as well as letters from the ICI, ABA and others. Today, we quote from a few more, including comments from U.K. and France-based asset managers HSBC Asset Management, BNP Paribas, Amundi and Aviva Investors. Jonathan Curry, who will speak on "European, ESG and Corporate Issues" at our upcoming Money Fund Symposium in Philadelphia (Sept. 21-23), writes in, "HSBC Asset Management Response to FSB Policy Proposals to Enhance Money Market Fund Resilience," "HSBC Asset Management is HSBC's core investment business dedicated to managing assets for institutions and individuals worldwide, with USD612.4 billion in total assets under management."
Curry continues, "As part of the HSBC group, we have local liquidity expertise across both core and emerging markets, with Liquidity assets accounting for USD 133.0 billion (or 21.7% of HSBC Asset Management's total assets under management). We have more than 25 year's experience in management money market assets, and operate global and local funds across 10 currencies with investment professionals located around the world. This includes funds domiciled and regulated in Europe, the Americas and Asia. We operate LVNAV (in Europe), CNAV and VNAV funds, in both credit and public debt strategies."
He explains, "HSBC Management treats Liquidity management as a separate discipline and has allocated dedicated resources accordingly. There are teams of portfolio managers, credit analysts, risk managers and client service teams focused on our Liquidity business. This focus, and deep experience managing a wider range of fund types, across a number of different markets, means we are well positioned to understand the needs of our investors and the markets in which we operate."
Currey says, "We are pleased to have the opportunity to respond to this important consultation. We are supportive of any and all efforts to consider potential policy measures to improve the resilience of MMFs and short term funding markets. We have carefully considered the presentation of vulnerabilities and each of policy proposals set forth in your report and provided responses below. We are happy to support continued engagement with you on this report."
He states, "Our experience with our client base was that investors were solely focused on our funds WLA levels. The 'bright line' of 30% weekly liquid assets ('WLA') that was created by US regulation and the linkage of the level of WLA to the need for a Fund's Board to consider the implementation of a liquidity fee or gate was the major driver of investor focus on this level.... The fund construct (Public Debt Constant Net Asset Value PDCNAV, Low Volatility Net Asset Value LVNAV, Variable Net Asset Value VNAV) was not a factor in whether a MMF faced challenges due to redemptions. In some cases, both VNAV and LVNAV MMFs faced heightened redemptions. It is worth noting that where heightened redemption activity did occur it tended to be currency specific. For example, in the case of LVNAV funds it was focused in some USD funds and in the case of VNAV funds it was focused in some EUR funds."
The letter from BNP Paribas tells the FSB, "BNP Paribas welcomes the opportunity to comment the FSB's consultation on Policy Proposals to Enhance Money Market Fund Resilience. We will mainly focus in our response to this consultation from a Euro-denominated VNAV MMF perspective, as almost all our funds are French MMFs of VNAV type. BNP Paribas Asset Management (the asset management division of the BNP Paribas Group) has €72bn of MMFs under management as of 31 December 2020 with the following breakdown: €46bn in French MMFs all of VNAV type, €26bn in Luxembourg MMFs of which GBP2.2bn and USD1.5bn for the LVNAV MMF type."
They explain, "During the COVID crisis, French Euro-denominated VNAV MMFs managed the outflows and proved resilient despite important redemptions, especially in March 2020 (-52.4bn euros). This is clearly explained in the French regulator AMF's 2020 Markets and Risk Outlook. This report also indicates that despite the significant net outflows in March 2020, inflows resumed as soon as May 2020. Overall, over the first 8 months of 2020, inflows amounted to +48.6bn euros. Another important fact is that, unlike the 2008 episode, no complaint was expressed with regard to the composition of the portfolios of French MMFs, especially in terms of the quality of assets. Indeed, French VNAV MMFs have demonstrated that they are safe and resilient in their construction and composition."
BNP adds, "As complementary information, French VNAV MMFs are subscribed mainly by institutional investors. They are used by investors as short-term investment vehicles that offer returns in line with money market rates by placing monies in short-term assets. They constitute an appreciated alternative for cash management allowing investors to diversify their counterparty risk. They are also easy to use and offer same day liquidity. At quarter end for instance, their outflows are generally important and are dealt in anticipation in a business-as-usual manner by asset managers. Indeed, MMFs have cyclical and anticipated redemptions (which might amount to as much as 20%) that are managed without difficulty. An efficient KYC permits discussion with the investors so as to anticipate redemptions for which the manager is preparing the necessary liquidity in advance. During the crisis, the need for cash expressed by some of them, especially corporates, amounted to high levels of redemptions from MMFs. As they are most liquid investment funds, they were naturally used in priority compared with other types of assets, even if the redemption was high almost in all asset classes."
A comment from Amundi says, "Amundi is the European largest asset manager by assets under management and ranks in the top 10 globally. It manages 1,729 billion euros of assets, as of end of 2020, across six main investment hubs in Boston, Dublin, London, Milan, Paris and Tokyo.... Amundi is also a leading and longstanding actor in managing liquidity funds, with 222 billion euros of assets as of end of 2020, out of which 180 billion euros of money market funds (MMFs) domiciled in the European Union, thus following the European Money Market Fund Regulation (MMFR). Amundi is notably the world largest manager of euro-denominated MMFs, with 175.4 billion euros of assets as of end of 2020. Most MMFs under its management belong to the VNAV (Variable Net Asset Value) type category and are domiciled in France. It also operates in the LVNAV (Low Volatility NAV) MMF market by offering two Luxembourg-domiciled funds, AAA-rated and denominated in euro and USD respectively."
It states, "[T]here is, in our view, a considerable risk in assessing that MMFs were the trigger of this liquidity crisis while they only revealed it. Accordingly, considering that the recently-applied MMF regulations need to be deeply reformed will contribute to missing the target. In this respect, while the report provides i) a useful and detailed description of MMF market and regulatory environment and ii) a fair analysis of interactions between MMFs and STFMs, we would like to share some concerns over the tonality of the report. Indeed, the report refers to MMF vulnerabilities that would have emerged from the Covi19 crisis, while we do consider that the difficulties MMFs encountered in March 2020 mainly stemmed from a disruption in the functioning of STFMs. Our perception is that the report underestimates the potential options that could be explored to improve the liquidity of STFMs, especially under stressed conditions. On this respect, we think that a lot can be achieved, on both player and instrument areas. Similarly, the report devotes a disproportionate share to the different options that are supposed to address MMF vulnerabilities: some of these options are unrealistic or potentially dangerous for MMFs' very existence."
Finally, outlier Aviva Investors writes, "We consider that moving away from the concept of constant and low volatility NAV and making funds free floating would be the most effective policy option. From our experience during the crisis, there were still some bids for commercial paper, but the prices were very unattractive. A variable NAV fund would be better placed to be able to accept those prices, sell the stock and move on. The real concern here is the treatment of such a fund with regards to cash and cash equivalence."
ICI's latest "Money Market Fund Assets" report shows assets falling at month-end after several weeks of minor gains. The release says, "Total money market fund assets decreased by $17.18 billion to $4.51 trillion for the week ended Wednesday, September 1, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $16.70 billion and prime funds decreased by $634 million. Tax-exempt money market funds increased by $153 million." Money fund assets are up by $212 billion, or 4.9%, year-to-date in 2021. Inst MMFs are up $310 billion (11.2%), while Retail MMFs are down $98 billion (-6.4%). (For the month of August, money fund assets were flat, declining by a miniscule $1.1 billion to $4.945 trillion, according to Crane Data's MFI Daily collection.)
ICI's stats show Institutional MMFs decreasing $19.1 billion and Retail MMFs increasing $1.9 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.944 trillion (87.5% of all money funds), while Total Prime MMFs were $474.3 billion (10.5%). Tax Exempt MMFs totaled $91.1 billion (2.0%). Over the past 52 weeks, money fund assets have increased by $15 billion, or 0.3%, with Retail MMFs falling by $99 billion (-6.5%) and Inst MMFs rising by $114 billion (3.8%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than our asset series.)
They explain, "Assets of retail money market funds increased by $1.89 billion to $1.43 trillion. Among retail funds, government money market fund assets increased by $3.08 billion to $1.13 trillion, prime money market fund assets decreased by $1.26 billion to $217.89 billion, and tax-exempt fund assets increased by $67 million to $79.50 billion." Retail assets account for just under a third of total assets, or 31.7%, and Government Retail assets make up 79.2% of all Retail MMFs.
ICI adds, "Assets of institutional money market funds decreased by $19.07 billion to $3.08 trillion. Among institutional funds, government money market fund assets decreased by $19.78 billion to $2.81 trillion, prime money market fund assets increased by $626 million to $256.47 billion, and tax-exempt fund assets increased by $86 million to $11.63 billion." Institutional assets accounted for 68.3% of all MMF assets, with Government Institutional assets making up 91.3% of all Institutional MMF totals.
In other news, Charles Schwab Asset Management posted a primer entitled, "Money Market Fund Reform and Form N-CR," which explains, "Money market funds are required to comply with disclosure requirements relating to Form N-CR. We are providing the questions and answers below to help you to better understand Form N-CR as well as the events that would lead to its filing."
They write, "As part of the 2014 Money Market Fund (MMF) Reform Amendments, the Securities and Exchange Commission (SEC) requires all MMFs to report information on Form N-CR regarding certain material events occurring on or after July 14, 2015 and make related website disclosures. Form N-CR is required to be filed with the SEC only if a MMF experiences any of the material events listed below. If such an event occurs, a MMF must file an initial report on Form N-CR with the SEC within one business day of the occurrence, followed by a second more detailed filing on Form N-CR within four business days of the occurrence."
Schwab tells us, "The purpose of the Form N-CR is to provide better industry oversight and increased transparency of all MMFs. The Schwab Money Funds are prepared to meet the disclosure requirements relating to Form N-CR should any of the material events be triggered."
They ask, "What is Form N-CR?" The update answers, "Form N-CR is an important part of the amendments adopted by the SEC on July 23, 2014. This document provides MMF shareholders with additional transparency by disclosing if a MMF experienced any one of the five material events identified below. If a MMF experiences any of the material events listed below, it must file an initial report on Form N-CR with the SEC within one business day after the occurrence, followed by a second more detailed filing on Form N-CR within four business days after the occurrence. In the case of three of the events, a MMF must disclose on its website substantially the same information that is required in the initial report on Form N-CR."
The events include: "Defaults and Insolvency: A MMF is required to file a Form N-CR with the SEC if the issuer or guarantor of a security that makes up more than one half of one percent of the MMF's total assets either defaults or becomes insolvent; Decline in Shadow Price: A MMF is required to file a Form N-CR with the SEC if its current NAV per share deviates downward by more than one quarter of one percent from its intended stable price of $1.00; and, Financial Support: A MMF is required to file a Form N-CR with the SEC if it is provided with financial support by a sponsor or affiliate. In addition to filing the Form N-CR with the SEC, a MMF must also disclose this event on its website."
Schwab also lists, "Liquidity Fees: A MMF is required to file a Form N-CR with the SEC if it (i) imposes a liquidity fee; or (ii) has less than 10% of its total assets invested in weekly liquid assets, regardless of whether it imposes a liquidity fee; or (iii) removes a liquidity fee. In addition to filing the Form N-CR with the SEC, a MMF must also disclose this event on its website; and, Fund Redemption Gates: A MMF is required to file a Form N-CR with the SEC if it either suspends redemptions by imposing a redemption gate or resumes redemptions by removing a redemption gate. In addition to filing the Form N-CR with the SEC, a MMF must also disclose this event on its website."
The Q&A continues, "How can I determine if any of the Schwab MMFs filed a Form N-CR?" The brief responds, "Schwab Money Funds will indicate on the 'Prospectus & Reports' page on `www.schwabassetmanagement.com that a Form N-CR was filed with the SEC for the following triggering events: Financial Support, Liquidity Fees, and Redemption Gates. A PDF in the column titled 'Form N-CR' beside the affected MMF will describe the event which required that the Form N-CR be filed with the SEC. The Form N-CR column will only appear on the 'Prospectus & Reports' page if a Schwab Money Fund has filed a Form N-CR. The Form N-CR column will not appear unless there is an affected MMF in one of the MMF product categories."
Finally, Schwab asks, "For what period of time will the Form N-CR notification be posted online?" They reply, "For any of the three above material events which require online disclosure, a MMF must maintain this disclosure online for one year after having filed with the SEC. Are the Schwab MMFs prepared to comply with the disclosure requirements relating to Form N-CR should a filing be required? Yes. The Schwab Money Funds are prepared to meet the disclosure requirements relating to Form N-CR." (Note: Click here to visit the SEC's listing of Form N-MFP filings.)
The Financial Times writes that the "Debt ceiling fight pushes money market funds to brink," which discusses the latest battle over the debt ceiling, the dramatic shrinkage in Treasury debt and its impact on money market funds. They tell us, "The supply of the safest US government bonds has been cut this month after federal spending limits were reinstated, driving prices higher and reigniting problems for the money market fund industry -- which has already been bailed out by the Federal Reserve once this year. Treasury bills -- US bonds which mature in a year or less -- were already scant this year after the US lengthened the average duration of its new debt issues. Supply then took another hit after Congress failed to pass legislation in July that would have allowed the Treasury department to issue new debt -- known as raising the debt ceiling."
The article says, "Analysts estimate issuance of new Treasury bills has been cut by roughly $900bn so far this year. That limited supply has driven prices higher and yields -- the premium investors are paid to hold the debt -- down to levels just above zero. When some yields turned negative in May, the Fed intervened to put a floor under those rates. But the worsening supply crunch is drastic enough that rates are heading back towards zero despite the Fed's support."
The FT explains, "Rock-bottom yields cause problems for money market funds, a $4.4tn industry that relies heavily on short-dated debt, erasing their profits or forcing them to close their doors to new investors. Money market funds are a linchpin in the global financial system because they are used by investors as a safe place to store cash for short periods."
They quote TD Securities' Gennadiy Goldberg, "Money funds are having trouble making ends meet because of these very low rates. It's not exactly a conducive environment to be a money-market fund unfortunately. As if zero interest rates weren't enough, this is just piling on." The article continues, "That dynamic will only get worse in the next month, said Goldberg. He does not expect the spending limits to be lifted before the end of October at least."
The FT adds, "The Treasury department is not expected to run out of money until late October or early November. After the decline in supply earlier this year drove some short-term rates negative, the Fed backstopped the market by paying interest on money placed in its Overnight Reverse Repo Facility. The facility provides money market funds with an alternative place to park cash, bolstering those short-term interest rates. The problem is that the RRP facility is now consistently being used at record levels, and is approaching the limits put on its usage by the Fed."
Finally, they comment, "The Fed could ultimately raise the counterparty limits on the facility, which could relieve some pressure on the market, an option it signalled it was open to in the minutes from its July policymaking meeting. But because of pandemic-related monetary and fiscal stimulus, there is still an enormous amount of money in the economy chasing too few investments. That is likely to keep yields on bills low and money market funds under pressure."
According to Crane Data's latest Money Fund Portfolio Holdings data (as of 7/31/21), Treasury securities represent $2.057 trillion of the $4.831 trillion in Taxable money market funds, or 42.6% of the total. This is down from a record high of $2.571 trillion (52.6%) in March 2021. Currently, Treasury money funds total $1.210 trillion, while Government money funds total another $2.759 trillion. Though the FT article doesn't discuss it, during previous debt ceiling scares the main concern was of a technical default in Treasuries and the possible flight from Treasury money funds.
Below, we list a number of Crane Data News articles that covered previous episodes of debt ceiling showdowns and their impact on Treasury money market funds. For more, see: "Wells Money Market Funds Debt Ceiling FAQ; Impact on Treasuries, Repo" (9/7/17), "BlackRock on Return of the Debt Ceiling, Avoiding T-Bills in October" (9/5/17), "Treasury Default, Debt Ceiling Concerns Loom; Problem for Govt MMFs?" (8/30/17), "OFR's Berner on Repo, MMFs; Fidelity on Debt Ceiling; Wells on 2016" (1/26/17), "Strategists on Treasury Debt Ceiling; SEC Stats on Liquidity Funds" (10/19/15), "Fed RRP Usage Breaks Record Sept. 30; T-Bills, and Debt Ceiling" (10/6/15) and "Federated's Hill and Cunningham on Debt Ceiling, Fed's Reverse Repo" (2/4/14).
The most acute episodes of these were in 2013 and 10 years ago, in July and August 2011. Our News on these periods includes: "Another Silly MMF Article from FT; Swirsky on Debt Ceiling Lessons" (11/25/13), "Fitch on Fed's Reverse Repos, Bank Support; Wells on Debt Ceiling" (11/13/13), "November MFI Features Debt Ceiling, JPMAM's Donohue, Portal News" (11/7/13), "MMF Assets Surge Following Debt Ceiling Resolution; ICI Blasts FT" (10/25/13), "MMFs See Big Outflows Prior to Debt Ceiling Extension; ICI's Reid" (10/18/13), "ICI, Stevens, Fitch Comment on Debt Ceiling Issues and Treasury MMFs (10/10/13), "October MFI Features Comment Letters, Fidelity's Prior, Debt Ceiling" (10/7/13), "ICI on S&P Downgrade, Reviews Flows During Debt Ceiling Debate" (8/8/11), "Fidelity's Huyck Comments on Debt Ceiling Countdown, Answers FAQs" (8/1/11), "More Debt Ceiling; Reuters Quotes Shapiro on Floating NAV, Europe" (7/22/11), "ICI's McMillan and Reid on Debt Ceiling Scenarios and Impact on MMFs" (7/21/11), "Invesco on Understanding the Debt Ceiling Debate and Money Funds" (7/13/11) and "Federated's Sue Hill Says Don't Sweat The Debt-Ceiling Showdown" (7/20/11).
Federated Hermes, the sixth largest manager of money market mutual funds in the world according to Crane Data, also submitted a comment letter to the Financial Stability Board in response to the FSB's "Policy proposals to enhance money market fund resilience: Consultation Report". Federated's Deborah Cunningham and Dennis Gepp state, "Federated Hermes has been in business since 1955 and has more than 45 years of experience managing money market funds ('MMFs').... Federated Hermes manages Low-Volatility Net Asset Value MMFs ('LVNAV'), and Public Debt Constant NAV MMFs ('CNAV') domiciled in the EU, and LVNAV and Variable NAV MMFs ('VNAV') in the UK. Federated Hermes also manages MMFs in the United States [and] accounts for institutional customers that invest in money market instruments, as well as US local government investment pools that invest in money market instruments. In all, Federated Hermes manages more than $400 billion (€330 billion) in money market assets, the vast majority of which have ESG integrated into their investment process. We appreciate the opportunity to comment on the consultation report on the FSB's policy proposals to enhance money market fund resilience that was published on 30 June 2021." (Note: Federated's Cunningham is scheduled to co-keynote our upcoming Money Fund Symposium conference, Sept. 21-23 (live) in Philadelphia. We hope to see you there!)
The letter's "Executive Summary" explains, "In March 2020, financial markets around the world experienced a liquidity crisis caused by the affirmative decisions of governments around the world to shut down their local economies in response to the Covid-19 Global Health Pandemic ('Liquidity Crisis'). Contrary to assertions made in the FSB report, the Liquidity Crisis was not caused or amplified by MMFs and any statements to such effect are simply untrue and are not supported by the data."
It continues, "In assessing the events of the Liquidity Crisis, it is critically important to follow the data and understand the timeline of events as they unfolded and how the markets were impacted. The Liquidity Crisis started with public reaction to the then rapidly spreading COVID-19 pandemic, the very sharp contraction of the real economy in early March as people stayed home to avoid contracting the illness under government-imposed lockdowns in many jurisdictions around the globe. These government actions to stem the pandemic sharply reduced investor confidence, price discovery and liquidity across all markets. Predictably, a contagion then ensued as the prospect of the worst pandemic in 100 years shut down global markets."
Federated comments, "The data clearly shows that the Liquidity Crisis did not discriminate against any one asset class, it impacted funds across the spectrum and investors of all types. While MMFs experienced significant liquidity pressure in March 2020, such pressure exposed a critical error in previous regulatory reform efforts: the improper linkage of potential liquidity fees and gates to a MMF's weekly liquid asset ('WLA') requirement. This linkage created an unnecessary incentive for investors to redeem and led to artificially high redemptions in both the United States ('US') and in the European Union ('EU') during the Liquidity Crisis. This linkage of WLA and potential imposition of fees and gates is without question the key vulnerability in US and EU MMFs that should be remedied, and it is supported by the data."
They write, "In addition to delinking the WLA thresholds from the potential imposition of fees and gates, the FSB should expand its review and focus on improving the resilience of the short-term funding markets ('STFMs'). The FSB must better analyse how the STFMs function and the role of their market participants. A proper analysis of the STFMs needs be a collaborative endeavour. MMFs are but one small player in the STFMs and playing a role in the markets and reacting to market stresses should not be confused with causing such market stresses. Additionally, vulnerabilities in the STFMs should not be confused or designated as vulnerabilities in MMFs. Most of the vulnerabilities identified in the FSB report are inherent to the STFMs, not MMFs."
Cunningham and Gepp tell the FSB, "We appreciate the desire for central banks to avoid having to step in and provide liquidity in the markets and we fully support any enhanced regulation that makes sense, is supported by the data, and increases the safety and stability of MMFs. However, in a Liquidity Crisis caused by affirmative actions by governments around the world, central banks, however reluctant, will need to step in and support market-wide liquidity. A desire to eliminate any risk that central bank intervention will be required again is simply not realistic, contrary to a fundamental tenet of central banks (to provide liquidity) and ill-conceived if one believes regulating MMFs out of existence will accomplish an impossible objective."
They write, "To enhance the safety and stability of MMFs the FSB should focus on the following Reforms which would strengthen and enhance the safety and stability of MMFs in the US and EU: 1. Eliminate the Link Between WLA Requirements and Potential Fee/Gate Implementation. Reducing/removing the ill-conceived regulatory incentive to runs by delinking the 30% WLA requirement and potential imposition of a fee or gate addresses the FSB's point on 'reducing the demand from the non-bank financial system for liquidity rising unduly in stress periods.'"
Federated's letter also suggests, "2. Enhance Know Your Customer ('KYC') Requirements. In the EU, MMFs are already required to 'establish, implement, and apply procedures and exercise all due diligence with a view to anticipating the effect of concurrent redemptions by several investors, taking into account at least the type of investor, the number of units or shares in the fund owned by a single investor and the evolution of inflows and outflows' as part of KYC requirements set forth in Article 27 of the Money Market Fund Regulation ('MMFR'). However, for an intermediated investor, whilst MMF managers are required to ask for such information, intermediaries are not subject to a regulatory obligation to provide the information. In the US, the scope of Rule 22c-2 under the Investment Company Act of 1940 should be expanded to apply to MMFs (currently excluded)."
It also recommends, "3. Short-Term Funding Market Reform. Enhancing the resiliency of STFMs by addressing the vulnerabilities in the STFM structure addresses the FSB's point on 'ensuring the resilience of the supply of liquidity in stress; and assessing what can, or should, be done by central banks to backstop market functioning effectively, without creating incentives for market participants to take on more risks'."
The comment letter adds, "In addition to the reforms noted above, to further enhance the safety and stability of MMFs in Europe, the FSB should also focus on the following reforms: 1. With a MMF's liquidity delinked from the potential imposition of a liquidity fee or gate we believe that the current regulatory requirements of 10% daily and 30% weekly (subject to increase by the KYC Rule) are appropriate and should not be increased. These levels are consistent in both the EU and the US but for one type of EU MMF (VNAV MMFs) which are subjected to lower liquidity requirements, which likely contributed to its stress during the Liquidity Crisis. As such, we support increasing the required liquidity levels of EU VNAV MMFs from 7.5% daily and 15% weekly liquidity, to 10% daily and 30% weekly liquidity requirements consistent with other EU MMFs and US VNAV MMFs."
Federated says, "MMFs in the EU are also subject to arbitrary restrictions on holding high-quality government securities, which is inconsistent with the economic realities of these securities. We support removing the arbitrary 17.5% restriction on including high-quality government securities as WLA for EU MMFs as, through both the 2008 Financial Crisis and Liquidity Crisis, high-quality government securities have proved to be the most liquid; and 3. MMFs in the EU are also restricted on their ability to use repo due to a drafting inconsistency. The global standard should support the inclusion of 5-day repo as eligible WLA. The conflict between Article 15 of the EU MMFR, which limits investments in repo to 2 days, and Article 24 of the MMFR, which specifically sets forth the inclusion of 5-day repo as part of an EU MMF's WLA, should be corrected."
Finally, they summarize, "MMFs are important short-term high-quality diversified and transparent investment products which have provided significant benefits to investors and issuers in the US and EU since their inception. MMFs in the EU and the US are the highest regulated product in the market and they are fully transparent to not only regulators but to investors. MMFs are 100% capitalized and investment risk remains with the investors. It is critically important that MMFs remain a viable product available for global investors."
