News Archives: January, 2022
Federated Hermes hosted its Q4'21 quarterly earnings call on Friday, which contained a number of comments on money fund fee waivers, swing pricing, rising rates and more. CEO Chris Donahue comments in his opening statement, "Now moving to money markets. Assets were up about $34 billion in the fourth quarter with about $20 billion from funds and $14 billion from separate accounts. In addition to seasonal trends, we benefited from ongoing stimulus-driven liquidity growth as well as wins in certain institutional market segments. Our money market mutual fund market share, including sub-advised funds was about 7.4% at the end of the year, up from 7.2% at the end of the third quarter. With the market pricing in a series of hikes in short-term rates in 2022, including the first increase in March, we have begun to see increases in the rates in the 3 months and longer portions of the money market curve. Tom will update how this impacts our yield waiver outlook."
He explains, "We believe that higher short-term rates will benefit money market funds beyond waiver relief. As in the 2009 to 2016 period of near zero rates, money market funds have retained most of their assets even as alternatives offered higher yields. Over the span of the last Fed tightening cycle that began in the fourth quarter of '16 through the last rate hike in the fourth quarter of '18, after an initial decline, our money market fund managed assets increased about 15%. The industry followed a similar pattern when after initial decline was followed by growth of 11% over that time frame."
Donahue says, "The higher rates helped us continue to grow these assets by an additional 22% through the third quarter of '19 when the Fed began to ease rates. Similarly, industry money market fund assets also grew in this period, showing a 14% increase. Now we closely monitor and comment on the SEC's proposed money market fund regulatory changes. The comments submitted to the SEC, by us and others, clearly note that swing pricing is not a workable alternative for institutional prime and muni money market funds. We believe that most institutions would not use these products if swing pricing were to be imposed."
He tells us, "In addition to uncertainty around redemption proceeds, large-scale system changes would be required by both money fund managers and investors to enable swing pricing to work. In our view, few, if any, will undertake these efforts. As a result, we expect that most of the assets currently in institutional prime and muni funds will shift to government money market funds, as many did the last round of changes in 2016, or to products like our private prime fund that are not subject to 2a-7 money market mutual fund regulations."
Donahue adds, "We have approximately $8 billion in client assets in institutional prime and muni funds that would be impacted if swing pricing were to be imposed as described. Taking a look now at recent asset totals. Managed assets were approximately $651 billion, including $436 billion in money markets, $90 billion in equities, $98 billion in fixed income, $23 billion in alternative private markets and $4 billion in multi-asset. Money market mutual fund assets were $294 billion."
CFO Tom Donahue says on the call, "Total revenue for the quarter was down 2% from the prior quarter due mainly to lower average equity assets, higher money market fund waivers, and lower performance fees, partially offset by higher money market assets, higher alternative private market assets and higher fixed income assets.... Advertising and promotional increased due to higher advertising and conference expense. We saw some restoration in travel and [with] short-term rates moving up in anticipation of Fed right Fed rate hikes beginning in March, we estimate that the negative impact on operating income from minimum yield waivers on money market funds for Q1 will improve to about $22 million compared to $38 million in Q4."
He states, "Assuming a Fed rate hike in March, we expect the Q2 negative impact to decrease about 90% from Q1 estimated levels. Estimates are based on our investment team's expectations for portfolio yields and recent asset levels, asset mix and other factors. The amount of minimum yield waivers and the impact on operating income will vary based on several factors, including, among others, interest rates, the capacity of distributors to absorb waivers asset levels and asset mix. Any changes in these factors can impact the amount of minimum yield waivers including in a material way."
During the Q&A, fee waivers were a big topic. Money Market CIO Deborah Cunningham responds, "Everybody's factors are a little bit different. It's asset levels, asset composition, how much is in government, how much is in Prime, how much is in Muni. The dynamics of the curves between those sectors, what the actual outlook would be on an expectation, whether it's additional moves beyond March, or only one or two moves throughout the year. You also have the expense factors that are being charged. Those are not uniform across the market. As such, the waivers aren't uniform based on those. So lots of different factors that go into that determination and calculation."
Asked more about swing pricing, Chris Donahue answers, "It deserves a draconian response. In Europe, they don't really do it on real money market funds, except that they're pricing them more or less out of a black box. What it does is you end up with pricing that makes the product unusable.... If 4% redemption occurs, then you have to go to a swing price. The customers aren't going to know that that's going on in a non-volatile time frame, and they're going to be surprised to the negative to get hit with what amounts to a redemption fee through the mechanism of a swung price."
He continues, "The mechanisms that have to be put in are expensive, time-consuming and of no value. And so why are customers going to do that? Why do we want to do it? Basically, it looks to me like it's ... what the Fed said years ago that they wanted to either kill prime and muni funds or regulate them out of existence. Our view is from a ... real stakeholder defense that issuers have the right issue in, and buyers have the right to buy, these products that have proven very resilient and very successful over the years, protestations by the Fed to the contrary, notwithstanding."
On rising rates and money fund flows, Cunningham says, "Historically, when interest rates have gone up, the initial reaction is for money market funds to lose assets. Generally speaking, over most cycles, it lasts longer than it did in the '16 to '18 cycle. We think this will be more like the '16 to '18 cycle.... Now it is dynamic, obviously.... Products reflect [rates now] from a yield curve standpoint faster than they have in [past] Fed tightening cycles. In this case, ... it's getting rates back to where they should be in a more normalized environment with an inflationary environment that also becomes more normalized."
Donahue responds, "Let me add also a couple of other factors. One is to take a look at the money supply. And all the money market fund [assets] is a function of that in the hands of all the individuals that have money, so this is a look at what you might call core money market funds, where people just need a cash management service. And this is an inexorable thing that grows. I don't think they're going to start shrinking the money supply. Now [that's] an underlying feature which enables us to get to higher highs and higher lows. It's one of the ingredients. Another one is these products over all these decades have shown tremendous resilience and tremendous ability to give the clients what they want. And so that's another big factor and why these products continue to be successful."
When asked about consolidation, Donahue answers, "What we have discovered is that the cycle really doesn't drive that truck. It's more of a longer-term internal decision by other potential roll-up candidates as the CEO and the businesspeople and the CFO of those enterprises decide whether those things make sense for them given the risk profile and the growth profile. So it just doesn't work as an accelerant. We've been in this a long, long time.... We simply call on them all the time so that when the opportunities arise, everybody knows that Federated Hermes is a warm and loving home for their money fund."
Finally, when asked about brokerage sweep balances, Cunningham tells us, "Well, first of all, those brokerage sweeps at this point are within our government sector. That's because of the FNAV nature of the prime institutional and municipal institutional that went into effect in 2016.... From an industry standpoint, I think about 20% to 25% of the government assets in the market, are in that type of a sweep arrangement."
President Raymond Hanley adds, "[C]oming out of the 2016 cycle ... as the rates rose, we did see exactly what you're talking about. The cash yields in and of themselves become -- it becomes a more attractive asset class.... [That] certainly, for us, helped us with brokers and other intermediaries who were able to ... move out of the default option ... with their cash. They're able to access meaningfully higher yields with us, and that was something we were very active in doing right up until the time where the Fed pretty aggressively moved the rates back down."
The Investment Company Institute released its latest weekly "Money Market Fund Assets" report, as well as its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for December 2021 Thursday. The former shows assets rebounding strongly (up $28.6B) after falling sharply in the first three weeks of January (down $88.5B). This followed 8 straight weeks of gains at year end where assets rose by $150.6 billion. Year-to-date, MMFs are down by $60 billion, or -1.3%. Over the past 52 weeks, money fund assets have increased by $321 billion, or 7.4%, with Retail MMFs falling by $40 billion (-2.6%) and Inst MMFs rising by $361 billion (12.9%). (Note: Thanks again to those who attended and supported our Money Fund University "basic training" event last week! Crane Data Subscribers and MFU Attendees may access the Powerpoints and recordings via our "Money Fund University 2022 Download Center." We also hope to see some of you live in 2 months at our next event, Bond Fund Symposium, which is March 28-29 in Newport Beach, Calif.)
ICI's weekly release says, "Total money market fund assets increased by $28.59 billion to $4.65 trillion for the week ended Wednesday, January 26, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $31.78 billion and prime funds decreased by $2.41 billion. Tax-exempt money market funds decreased by $771 million." ICI's stats show Institutional MMFs increasing $19.1 billion and Retail MMFs increasing $9.5 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.120 trillion (88.7% of all money funds), while Total Prime MMFs were $438.6 billion (9.4%). Tax Exempt MMFs totaled $86.6 billion (1.9%).
ICI explains, "Assets of retail money market funds increased by $9.48 billion to $1.49 trillion. Among retail funds, government money market fund assets increased by $11.84 billion to $1.21 trillion, prime money market fund assets decreased by $1.76 billion to $201.81 billion, and tax-exempt fund assets decreased by $601 million to $76.80 billion." Retail assets account for just under a third of total assets, or 32.0%, and Government Retail assets make up 81.2% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $19.11 billion to $3.16 trillion. Among institutional funds, government money market fund assets increased by $19.94 billion to $2.91 trillion, prime money market fund assets decreased by $654 million to $236.73 billion, and tax-exempt fund assets decreased by $170 million to $9.80 billion." Institutional assets accounted for 68.0% of all MMF assets, with Government Institutional assets making up 92.2% of all Institutional MMF totals. (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 Crane's asset series.)
ICI's monthly "Trends" report shows that money fund assets surged $136.1 billion in December to $4.756 trillion. This follows increases of $65.5 billion in November, $11.1 billion in October, $6.4 billion in September and $25.5 in August. MMFs decreased $24.4 billion in July and $73.4 billion in June, but increased $78.6 billion in May, $31.9 billion in April, $129.4 billion in March and $39.4 billion in February. Assets decreased $5.2 billion in January 2021. For the 12 months through Dec. 31, 2021, money fund assets increased by $422.6 billion, or 9.8%. (Month-to-date in January through 1/26, MMF assets have decreased by $113.5 billion to $5.038 trillion according to Crane's MFI Daily, which tracks a broader universe of funds.)
The monthly release states, "The combined assets of the nation's mutual funds increased by $565.99 billion, or 2.1 percent, to $26.96 trillion in December, 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 outflow of $10.30 billion in December, compared with an inflow of $16.59 billion in November.... Money market funds had an inflow of $136.27 billion in December, compared with an inflow of $65.42 billion in November. In December funds offered primarily to institutions had an inflow of $87.84 billion and funds offered primarily to individuals had an inflow of $48.43 billion."
The Institute's latest statistics show that Taxable funds saw gains while Tax Exempt MMFs saw losses yet again last month. Taxable MMFs increased by $136.3 billion in December to $4.669 trillion. Tax-Exempt MMFs decreased $0.1 billion to $86.8 billion. Taxable MMF assets increased year-over-year by $441.3 billion (10.4%), while Tax-Exempt funds fell by $18.7 billion over the past year (-17.7%). Bond fund assets decreased by $7.6 billion in December to a $5.622 trillion, but they rose by $407.8 billion (7.8%) over the past year.
Money funds represent 17.6% of all mutual fund assets (up 0.1% from the previous month), while bond funds account for 20.9%, according to ICI. The total number of money market funds was 305, down two from the prior month and down from 340 a year ago. Taxable money funds numbered 245 funds, and tax-exempt money funds numbered 60 funds.
ICI's "Month-End Portfolio Holdings" confirms yet another huge jump in Repo last month. Repurchase Agreements expanded their lead as the largest composition segment in December, rising $212.6 billion, or 10.1%, to $2.328 trillion, or 49.9% of holdings. Repo holdings have increased $1.320 trillion, or 131.0%, over the past year. (See our Jan. 12 News, "Jan. MF Portfolio Holdings: Repo Soars to Almost 50%, Led by Fed RRP.)
Treasury holdings in Taxable money funds inched lower again but remained the second largest composition segment. Treasury holdings declined $2.6 billion, or -0.2%, to $1.694 trillion, or 36.3% of holdings. Treasury securities have decreased by $561.0 trillion, or -24.9%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they decreased $23.5 billion, or -5.8%, to $378.9 billion, or 8.1% of holdings. Agency holdings have fallen by $250.7 billion, or -39.8%, over the past 12 months.
Commercial Paper moved up to fourth place, but was down $11.5 billion, or -7.8%, to $136.8 billion (2.9% of assets). CP has decreased by $31.2 billion, or -18.6%, over one year. Certificates of Deposit (CDs) fell to fifth place; they decreased by $64.7 billion, or -35.7%, to $116.5 billion (2.5% of assets). CDs held by money funds shrank by $24.4 billion, or -17.3%, over 12 months. Other holdings increased to $27.1 billion (0.6% of assets), while Notes (including Corporate and Bank) remained flat at $3.0 billion (0.1% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 47.966 million, while the Number of Funds dropped by two funds to 245. Over the past 12 months, the number of accounts rose by 6.924 million and the number of funds decreased by 20. The Average Maturity of Portfolios was 36 days, one day lower than November. Over the past 12 months, WAMs of Taxable money have decreased by 12.
The SEC proposed "Amendments to Form PF to Require Current Reporting and Amend Reporting Requirements for Large Private Equity Advisers and Large Liquidity Fund Advisers," which would increase the disclosures made by private liquidity funds, we learned from law firm Troutman Pepper. The proposal comments, "The Securities and Exchange Commission is proposing to amend Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds to require current reporting upon the occurrence of key events. The proposed amendments also would decrease the reporting threshold for large private equity advisers and require these advisers to provide additional information to the SEC about the private equity funds they advise. Finally, we are proposing to amend requirements concerning how large liquidity advisers report information about the liquidity funds they advise. The proposed amendments are designed to enhance the Financial Stability Oversight Counsel's ('FSOC') ability to monitor systemic risk as well as bolster the SEC's regulatory oversight of private fund advisers and investor protection efforts." (See our Nov. 16 News, "SEC: Private Liquidity Funds Dip to $296B in Q1'21; MFI Intl Holdings" for our last recap of Form PF data.)
Under the section "Large Liquidity Fund Adviser Reporting," the SEC writes, "Section 3 requires large liquidity fund advisers to disclose information about the liquidity funds they advise. The proposal would revise how large liquidity fund advisers report operational information and assets, as well as portfolio, financing, and investor information. The proposal also would add a new item concerning the disposition of portfolio securities. The proposed changes are designed to help us see a more complete picture of the short-term financing markets in which liquidity funds invest, and in turn, enhance the Commission's and FSOC's ability to assess short-term financing markets and facilitate our oversight of those markets and their participants. The proposed changes also are designed to improve data quality and comparability and make certain categories in section 3 more consistent with the categories the Board of Governors of the Federal Reserve System uses in its reports and analysis. Together, the proposed amendments are designed to enhance investor protection efforts and systemic risk assessment."
They explain, "We propose to revise how advisers report operational information about their liquidity funds. Liquidity funds that seek to maintain a stable price per share may be susceptible to runs, which could cause systemic risk. Currently, Questions 52 and 53 require advisers to report whether the liquidity fund uses certain methodologies to compute its net asset value. These questions were designed to help determine how the fund might try to maintain a stable net asset value. We propose to replace current Questions 52 and 53 with a requirement for advisers to report the information more directly, by requiring advisers to report whether the liquidity fund seeks to maintain a stable price per share and, if so, to provide the price it seeks to maintain. This proposed approach is designed to help the Commission and FSOC identify liquidity funds that seek to maintain a stable price per share, and therefore, may be susceptible to runs, which could cause systemic risk."
The SEC continues, "We also propose to remove current Question 54, which requires advisers to report whether the liquidity fund has a policy of complying with certain provisions of rule 2a-7. We can use portfolio information we collect in section 3, Item E, to determine whether the liquidity fund is complying with rule 2a-7, regardless of whether it has a policy or not."
Describing "Assets and portfolio information," they tell us, "We propose to require advisers to report cash separately from other categories when reporting assets and portfolio information concerning repo collateral. Section 3 already requires advisers to report all liquidity fund assets and repo collateral, including cash. However, because there is no distinct category for cash, it is unclear what category advisers should use to report it. Therefore, this proposed change is designed to improve data quality and comparability, and help ensure data is reported in the correct category."
The SEC says, "We are proposing to revise further how advisers report liquidity fund assets. We propose to require advisers to provide the total gross subscriptions (including dividend reinvestments) and total gross redemptions for each month of the reporting period. This proposed requirement is designed to help explain changes in net asset value during the reporting period, such as whether net asset value changes are due to subscriptions, redemptions, or changes in the value of the reporting fund's holdings. This level of detail is designed to help ensure accurate reporting and inform the Commission and FSOC of trends across large liquidity funds and short-term financing markets, generally. We also propose to clarify that the term 'weekly liquid assets' includes 'daily liquid assets.' This clarification is designed to improve data quality and comparability, based on our experience with Form PF."
They also write, "We are proposing to revise further how advisers would report liquidity fund portfolio information. As a general matter, the proposed more granular requirements are designed to enhance reporting accuracy and data comparability, as well as enhance our and FSOC's data analysis, as described below. We propose to add instructions directing advisers to provide information separately for the initial acquisition of each security the liquidity fund holds and any subsequent acquisitions. This instruction is designed to facilitate the Commission and FSOC's ability to analyze other information we propose to require about each security, including acquisition information: the trade date and the yield, as of the trade date.... In connection with these proposed amendments, we would remove the requirement for advisers to report the coupon when reporting the title of the issue, because the yield would provide us with that information."
The SEC states, "We also propose to require advisers to report additional identifying information about each portfolio security, including the name of the counterparty of a repo. Currently, section 3 requires advisers to name the issuer. However, for repos, it is not clear whether advisers should report the name of the counterparty of the repo, the name of the clearing agency (in the case of centrally cleared repos), or both. Therefore, this proposed amendment is designed to improve data quality and comparability, based on our experience with Form PF.... When advisers select the category of investments that most closely identifies the security, we propose to revise the categories so advisers would distinguish between U.S. Government agency debt categorized as (1) a coupon-paying note and (2) a no-coupon paying note. This proposed amendment is designed to provide more granular information about U.S. Government agency debt, so the Commission and FSOC can filter data for more robust analysis."
They comment, "We propose to revise how advisers report investor information. We propose to add a new question requiring advisers to report whether the liquidity fund is established as a cash management vehicle for other funds or accounts that the adviser or the adviser's affiliates manage that are not cash management vehicles. This proposed amendment is designed to distinguish between liquidity funds that are offered as a separate investment strategy versus those that are maintained to support other investment strategies, which would help us assess whether assets are shifting from registered money market funds to unregistered products, such as liquidity funds, and better understand the risks associated with assets shifting to unregistered products."
The SEC tells us, "We also propose to revise how advisers report beneficial ownership information. Instead of requiring advisers to simply report how many investors beneficially own five percent or more of the liquidity fund's equity, section 3 would require advisers to provide the following information for each investor that beneficially owns five percent or more of the reporting fund's equity: (1) the type of investor and (2) the percent of the reporting fund's equity owned by the investor. This information is designed to help inform the Commission and FSOC of the liquidity and redemption risks of liquidity funds, because different types of investors may pose different types of redemption risks. For example, if a market event results in a certain type of investor exercising redemption rights, liquidity funds with a homogenous investor base composed of that type of investor could face greater redemption risks, which could raise systemic risk implications, as compared to liquidity funds with a more diversified investor base."
Under "Disposition of portfolio securities," they state, "We propose to require advisers to report information about the disposition of portfolio securities for each of the three months in the quarter. To effectuate this, the proposal would add new Item F (Disposition of Portfolio Securities) to section 3. Under the proposal, advisers would report information about the portfolio securities that the liquidity fund sold or disposed of during the reporting period (not including portfolio securities that the fund held until maturity). Advisers would report the amount as well as the category of investment. This proposed amendment is designed to inform the Commission and FSOC of liquidity funds' liquidity management, as well as their secondary market activities in normal and stress periods, to enhance systemic risk assessment. It also is designed to help provide data about how liquidity funds' selling activity relates to broader trends in short-term funding markets to aid the Commission's investor protection efforts and FSOC's systemic risk analysis."
Finally, the SEC adds, "Large liquidity fund advisers report information in section 3 about the liquidity fund's 'WAM,' or weighted average maturity and 'WAL,' or the weighted average life. Generally, WAM and WAL are calculations of the average maturities of all securities in a portfolio, weighted by each security's percentage of net assets. These calculations help determine risk in a portfolio, because a longer WAM and WAL may increase a fund's exposure to interest rate risks. Form PF's definition of 'WAM' and 'WAL' instruct advisers to calculate them using provisions of rule 2a-7. We propose to revise the Form PF glossary definition of 'WAM' and 'WAL' to include an instruction to calculate them with the dollar-weighted average based on the percentage of each security's market value in the portfolio. This proposed change is designed to help ensure advisers calculate WAM and WAL, which can indicate potential risk in the market, using a consistent approach. We believe the proposed amendment would improve data quality and comparability, which in turn could enhance investor protection efforts and systemic risk assessment."
Last week, Crane Data hosted its Money Fund University annual "basic training" event, which featured two afternoons of online sessions, as well as number of recorded segments. One of the highlights featured J.P. Morgan Securities' Teresa Ho presenting the "Instruments of the Money Markets Intro." She gave an overview of the money markets, reviewed the major securities owned by money market funds, and presented an overall supply outlook. (Note: Crane Data Subscribers and Money Fund University Attendees may access the Powerpoints and recordings via our "Money Fund University 2022 Download Center.")
She tells us, "I'm here to give an introduction to the instruments of the money markets.... The money markets refer to a part of the fixed income markets whose securities mature inside of 13 months or less. It is high quality, it is low credit risk, and clearly because of both of those things, they don't yield a lot relative to the longer end of the credit curve.... This is a very, very large market.... Borrowers use it as a way to help finance their expenses on a short-term basis. Investors use it as a way to invest cash on a temporary basis, and then others use it as a way to manage their interest rate risk.... As long as there's demand for liquidity and as long as there's a mismatch between incoming and outgoing cash flows, there is a need for the money markets."
Ho continues, "What's interesting is that while it was a fairly mundane part of the market back in the day. I think what we have found out, given all of the recent financial crisis that we've come across, is that just how integral this part of the market is to the rest of the fixed income markets, particularly as it relates to how benchmarks like Fed funds, SOFR and LIBOR trade, as well as in the plumbing of monetary policy."
She explains, "So just to give you a sense of all the different types of borrowers ... the list ranges from banks to the U.S. government to U.S. municipalities to corporates and GSEs. But by far, in terms of instrument types used, the majority of the money markets are dominated by banks. They access the market not only in the form of commercial paper, but also in Fed funds in the interbank market. Is it certificate of deposits, time deposits, as well as certain types of derivatives like Eurodollar futures.... From what we can gather in terms of supply in the money market, we estimate that banks currently represent about 30% of the entire market, which at face value may seem like a lot. But ... that is a far cry from where supply was in 2007 and 2008."
Ho comments, "Slide #3 is a chart of our best estimate of the size of the money markets, and so that includes all the instruments that are inside of 13 months. In early 2008, you can see there are that total supply with around $11.5 trillion dollars. If you exclude Treasuries, just talking about credit supply, that number was closer to $9.5 trillion. Today, those figures are closer to $12.5 trillion and $6.0 trillion, respectively, which means that over the past ... 15 years or so, credit supply has fallen by a dramatic $3.5 trillion, while Treasuries has grown by about $6.0 trillion."
She states, "The Treasury story's easy to explain. It was fueled by the growth in the government's budget deficit over the past couple of years, particularly as it relates to all the recent stimulus that we've seen.... Conversely, as it relates to credit supply, this contraction ... was driven by banks ... because they over relied on the money markets back in 2007 and 2008 [which] forced them to de-lever during the global financial crisis. The post regulatory environment also exerted a lot of pressure on the banks to reduce their balance sheets. More recently, given all of the liquidity that's been injected into the financial markets ... there's just not a lot of need on the part of banks and nonfinancial corporations to borrow in the money market. So all of this has really resulted in a pretty dramatic reduction in credit supply in the money market."
Ho tells MFU, "If we just look at the commercial paper market over the years, we have certainly seen some of these dynamics play out.... The market at its peak used to be around $2.0 trillion in size in 2006. Over 50% of that was in ABCP, or asset-backed commercial paper, which has historically been a very popular funding vehicle for banks to raise short term funding on behalf of their clients. But since the collapse of SIV's and bank issuance, the sector has significantly fallen."
She adds, "The same is true about repo, which has historically been also one of the largest sources of bank funding in the money markets. Generally, dealers use repo as a ways to raise cash to make markets. But this sector really suffered from tremendous liquidity pressure during the global financial crisis in 2008, causing the market to be half the size where it was pre GFC.... That being said ... we have seen some growth in the markets recently. I think that's in part driven by dealers getting more efficient in how they manage their balance sheets. So that's provided a little bit of growth in the marketplace."
Regarding Fed repo, Ho says, "At year end, total RRP usage was around $1.9 trillion. Money funds made up $1.7 trillion.... I can get into some of the reasons why that usage is so high, but that is certainly something to note.... Looking ahead, we're anticipating that this number stays pretty elevated as we continue on throughout the course of this year."
She then discussed, "Where money market supply could go this year," explaining, "The area that I want to point out is dealer repo, where we've penciled in uptake of $200 billion in balances. And part of the reason for that uptick is that, you know, with the Fed stepping back as a big buyer of the Treasury market.... [Regarding] the other products in the money market space ... agencies ... should seriously be flat year over year, GSEs from Fannie and Freddie. [With] CD and CP on the margin, we see maybe a small uptick in their issuance there.... So, you know, that's why we kind of have outstandings start to be relatively flat year over year. The same is true for non-financial CP."
Discussing money fund balances, Ho says, "I suspect the large banks will continue to actively try to push some of these products off the balance sheet. As far as where it could go, obviously government money market funds are the most likely substitute. For that reason, we do think money fund balances stay elevated as [they have] been through this year. The other reason is more organic.... We're forecasting four rate hikes this year. Obviously, money fund yields are much more sensitive to interest rate hikes, and deposit yields are not.... As we move through this year, we would naturally expect that money fund yields and deposit yields to diverge, and that gap is going growing wider and wider. And what that means is that there's likely going to be a natural pool for the money to kind of move away from banks and into higher yielding products like government money market funds."
Finally, when asked about MMF reforms, Ho answers, "Obviously, I think the industry was a little bit disappointed when swing pricing was included in the proposal. You know, going back through the comments in response to the report, I think there was universal opposition across the entire industry [on] swing pricing, and yet they included it. So, you know, it's unclear at this point. I think there's a lot of moving parts. In an interesting twist, one of the SEC commissioners actually resigned at the end of last year, and this SEC commissioner actually voted against the release of the money fund reform proposal. So, it's unclear kind of how they will move forward with only four SEC commissioners in place at the moment."
She explains, "If everything is adopted as proposed, I think naturally what you'll see is basically prime funds looking more and more like government money market funds. [This is] in large part because of the increased daily and weekly liquidity requirements.... The spread differential between these two products will likely converge. [T]here's a real question as to whether money stays in prime funds, given kind of the lack of a yield advantage.... From a rates perspective, I think the question that we've been getting is, 'Will the CP market survive?' We all know that prime funds have historically been a huge buyer.... To the extent that we see money flow out of prime funds, does that mean that there's less capacity on the part of banks and financial issuers to continue to issue in the market? We don't think that's the case."
Ho adds, "I think there's a real likelihood that the money kind of moves into government money market funds. But I also think [money will] move into ultra-short bond funds and bond funds and SMAs. We've seen over the past probably five-plus years [that] issuers have really made an active effort to diversify their funding.... Prime funds only represent about 14% of the market.... Corporations make up about a quarter. You've got local governments, you've got mutual funds ... even stablecoin issuers.... So there are a lot of other types of investors in the market. I think the CP market will evolve, but it will still be there."
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets rose by $122.9 billion in December to a near-record $5.215 trillion, the 2nd highest monthly total on record (behind May 2020). The SEC shows that Prime MMFs declined by $20.5 billion in December to $816.3 billion, Govt & Treasury funds increased $144.4 billion to $4.304 trillion and Tax Exempt funds decreased $1.0 billion to $94.2 billion. Gross yields were higher while net yields were flat to higher in December. 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. (Note: Thanks again to those who attended and supported our recent Money Fund University! Crane Data Subscribers and MFU Attendees may access conference recordings and materials in our "Money Fund University 2022 Download Center.")
December's big asset increase follows gains of $53.7 in November, $7.9 billion in October, $19.9 billion in September and $24.9 billion in August. MMFs saw decreases of $39.9 billion in July and $86.9 billion in June. Assets increased $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 12/31/21, total MMF assets increased by $433.2 billion, or 9.1%, 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 $5.215 trillion in assets, $816.3 billion was in Prime funds, down $20.5 billion in December, $21 billion in November and $12.1 billion in October. This follows an increase of $2.6 billion in September, but declines of $8.1 billion in August, $19.4 billion in July, $19.9 billion in June and $14.6 billion in May. Prime funds increased $1.3 billion in April and $7.2 billion in March. Prime funds represented 15.7% of total assets at the end of December. They've decreased by $97.1 billion, or -10.6%, over the past 12 months. (Month-to-date in January, total MMF assets have plunged by $130.7 billion through 1/20, according to our MFI Daily.)
Government & Treasury funds totaled $4.304 trillion, or 82.5% of assets. They increased by $144.4 billion in December, $76.0 billion in November, $21.0 billion in October, $20.4 billion in Sept. and $32.8 billion in August, but decreased $18.7 billion in July and $67.8 billion in June. Govt MMFs also increased $90.3 billion in May, $48.4 billion in April and $140.9 billion in March. Govt & Treasury MMFs are up $550.0 billion over 12 months, or 14.6%. Tax Exempt Funds decreased $1.0 billion to $94.2 billion, or 1.8% of all assets. The number of money funds was 312 in December, down 2 from the previous month and down 32 funds from a year earlier.
Yields for Taxable and Tax Exempt MMFs were flat or higher in December. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on December 31st was 0.12%, up 2 bps from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 0.16%, up 1 bps from the previous month. Gross yields were 0.07% for Government Funds, unchanged from last month. Gross yields for Treasury Funds were also up 1 bps at 0.07%. Gross Yields for Tax Exempt Institutional MMFs were up 5 basis points to 0.11% in December. Gross Yields for Tax Exempt Retail funds were up 4 bps to 0.14%.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 0.08%, up 2 bps from the previous month but down 2 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 up 2 bps from November to 0.05%. Net Yields for Tax Exempt Retail funds were unchanged at 0.01% in December. (Note: These averages are asset-weighted.)
WALs and WAMs were mostly lower in December. The average Weighted Average Life, or WAL, was 54.0 days (up 2.3 days) for Prime Institutional funds, and 51.6 days for Prime Retail funds (down 4.4 days). Government fund WALs averaged 78.3 days (down 2.3 days) while Treasury fund WALs averaged 83.8 days (down 2.9 days). Tax Exempt Institutional fund WALs were 13.9 days (up 0.5 days from the previous month), and Tax Exempt Retail MMF WALs averaged 24.2 days (down 0.8 days).
The Weighted Average Maturity, or WAM, was 36.1 days (up 0.3 days from the previous month) for Prime Institutional funds, 43.7 days (down 3.9 days from the previous month) for Prime Retail funds, 33.6 days (down 1.0 days from previous month) for Government funds, and 40.0 days (down 1.0 days) for Treasury funds. Tax Exempt Inst WAMs were up 0.8 days to 13.8 days, while Tax Exempt Retail WAMs decreased 0.4 days to 23.7 days.
Total Daily Liquid Assets for Prime Institutional funds were 52.7% in December (up 2.3% from the previous month), and DLA for Prime Retail funds was 32.5% (up 4.1% from previous month) as a percent of total assets. The average DLA was 78.7% for Govt MMFs and 97.0% for Treasury MMFs. Total Weekly Liquid Assets was 62.9% (up 1.5% from the previous month) for Prime Institutional MMFs, and 45.3% (up 1.7% from the previous month) for Prime Retail funds. Average WLA was 89.8% for Govt MMFs and 99.4% for Treasury MMFs.
In the SEC's "Prime Holdings of Bank-Related Securities by Country table for Dec. 2021," the largest entries included: Canada with $113.4 billion, Japan with $71.3 billion, France with $49.6 billion, the U.S. with $46.1B, Aust/NZ with $32.6B, the U.K. with $19.4B, Germany with $15.1B, the Netherlands with $12.9B and Switzerland with $12.1B. The gainers among the "Prime MMF Holdings by Country" included: Canada (up $6.7 billion), Aust/NZ (up $2.7B), Switzerland (up $2.1B) and Japan (up $2.0B). Decreases were shown by: France (down $22.1B), Germany (down $18.9B), the Netherlands (down $15.7B), the U.K. (down $6.4B) and the U.S. (down $3.3B).
The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows the Eurozone subset had $82.2B (down $69.0B), while Europe (non-Eurozone) had $51.0B (down $29.2B from last month). The Americas had $159.6 billion (up $3.4B), while Asia Pacific had $120.7B (up $3.6B).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $811.8B billion in Prime MMF Portfolios as of Dec. 31, $362.0B (44.6%) was in Government & Treasury securities (direct and repo) (up from $272.7B), $143.9B (17.7%) was in CDs and Time Deposits (down from $220.9B), $157.7B (19.4%) was in Financial Company CP (down from $176.0B), $112.3B (13.8%) was held in Non-Financial CP and Other securities (down from $127.4B), and $35.9B (4.4%) was in ABCP (up from $35.4B).
The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $107.6 billion, Canada with $165.7 billion, France with $89.2 billion, the U.K. with $42.1 billion, Germany with $10.2 billion, Japan with $124.5 billion and Other with $22.3 billion. All MMF Repo with the Federal Reserve was up $342.7 billion in December to $1.740 trillion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 6.8%, Prime Retail MMFs with 3.8%, Tax Exempt Inst MMFs with 1.3%, Tax Exempt Retail MMFs with 3.6%, Govt MMFs with 13.5% and Treasury MMFs with 12.9%.
Allspring, the new name for the Wells Fargo Funds, recently hosted a webinar entitled, "On the Horizon: Recent Fed and SEC Updates and What It Means for Investors," which featured Allspring's Jeff Weaver, Laurie White, Brian Jacobsen and Yeng Butler. The description tells us, "All eyes were on Washington as we closed out the year, with several significant proposals and updates announced by the Securities and Exchange Commission (SEC) and Federal Reserve (Fed). Join our panel as they discuss what it means for investors. Topics will include: accelerated Fed tapering and rising rate expectations; recent developments from the SEC's proposed money market reform; and macro developments that prompted market and regulatory changes and the implications on investor's portfolios." We quote from the money fund heavy segments below. (Note: Thanks to those attending and supporting our Money Fund University, which continues this afternoon from 1-3pm. Crane Data Subscribers and MFU Attendees may access conference materials and recordings via our "Money Fund University 2022 Download Center.")
Weaver comments, "Higher rates is great news for money fund investors. You know, we've been at zero rates for ... it seems like forever.... So, higher rates will certainly be welcome.... We expect a rate hike in March. The market has really been adjusting for and expecting higher rates really since the end of September.... We see it in a couple other places too. Fed funds futures currently has about a 90 percent chance of a rate hike in March and [is] pricing in about 3 1/2 rate hikes for 2022."
He explains, "What this provides is opportunities out the curve now for short duration investors, those with separate accounts and those with the ability to buy ultra-short or short-term bond funds. We're starting to see quite a bit of value there. For money funds, you won't actually see the rates go up ... until that first hike, and even more so the second hike. Because of fee waivers in place, we need to get 25, 50 basis points of liftoff before we can really see the effects of that from a yield standpoint.... But the other benefit, too, is, we'll start to see rates higher across the curve."
On the Fed's RRP, Weaver tells us, "One of those tools that has come about in the last few years and has certainly been utilized quite heavily is the reverse repurchase program. That is where money funds and federal banks can take advantage of investing their cash with the Fed and in turn getting a pretty good rate, five basis points, which really helped the Fed manage the Fed funds rate off of that zero floor.... It's been quite popular in that balances at the end of the year were $1.9 trillion in the RRP.... That is one of the tools that is used by the Fed to help manage the Fed funds rate.... Even as the Fed begins to shrink the balance sheet, ... money fund investors will continue to utilize the RRP [though] we could see balances go down. But for now, it still remains an attractive investment for many funds that aim to hold on to a lot of short-term liquidity."
White summarizes the SEC's recent reform proposal, saying, "It comes as no surprise to anybody at this point that the March 2020 market dislocations that we experienced leading up to the pandemic response really highlighted the vulnerabilities in money market funds and short-term funding markets. So, the SEC is proposing amendments to Rule 2a-7, which governs money market funds, to help them be a more resilient in the face of stress and make them more transparent to investors in the future. So, I can summarize the four proposed amendments that would be most visible and impactful to shareholders and money market operations."
She says, "The first proposal that the SEC is making is that they remove the fees and gates from rule 2a-7. Under the current rules, institutional prime and tax-exempt money markets may impose a liquidity fee or temporarily suspend redemptions if weekly liquid assets fall below 30% and the board of directors determines it's in the fund's best interest.... March 2020, however, demonstrated that there were two unintended consequences of this particular rule. The first was that just the mere likelihood that fees and gates could be imposed prompted investors to redeem shares in their funds. And the second was that the linkage between the liquidity requirements and fees and gates curtailed fund managers from actually using their liquidity to fund redemptions. So, in recognition of these shortcomings, the SEC has decided to remove all reference to implementing any fees and gates from the rule. By and large, most organizations were actually advocating for removing the linkage between the two. So, this will be a welcome development for the industry."
White continues, "The second rule change that the SEC is considering is meant to be complementary to removing fees and gates. They would increase the minimum liquidity requirements for money market funds ... to raise those minimums to 25 percent with daily liquid assets and 50 percent on weekly liquid assets. They feel that this would better equip money market funds to manage significant and rapid investor redemptions even under conditions where money markets can't rely on secondary markets for liquidity.... You may think that this is a huge shift, but it's really not. These levels are consistent with liquidity levels that were being managed in money market funds in the four years right before the March 2020 dislocations. So, in combination with the first proposal, what this effectively does is it gives managers access to a larger liquidity bucket for them to work with in times of redemptions from the funds."
She comments, "The third proposal that the SEC is making is to implement swing pricing for institutional prime and tax-exempt money market funds. What this would mean would be it would require institutional funds to adjust their NAVs by what's called a swing factor, and that factor would reflect spread and transition costs if the fund experiences net redemptions during the pricing period. So the swing factor would be applied to the mark to market NAV that would be associated with the redemption cut off after a shareholder places a redemption trade."
White asks, "Why are they doing this?" She answers, "They feel that this provision of swing factors would remove the incentive for shareholders to preemptively redeem their shares in the event of market stresses. Because redeeming shareholders wouldn't necessarily know when or if they swing price from a factor would be implemented. Alternatively, it could also be viewed as a built-in incentive for shareholders to remain in the fund instead of redeeming ultimately. What the SEC feels it would do is that it would ensure redeeming shareholders bear the cost of their liquidity demands and that it will mitigate dilution for shareholders who remain in the fund and what they would experience when liquidity is depleted from the funds."
She adds, "Finally, the fourth important proposal that the SEC is making is that they're proposing to add amendments to address what happens in a potential negative interest rate environment. Since the global financial crisis in 2008, short term funding markets have experienced two periods of prolonged near zero interest rates, and at times this has meant that individual securities are traded at negative rates. Even though the Fed hasn’t implemented a negative interest rate policy."
When asked about challenges, she responds, "Certainly, I think the most complex provision is going to be swing pricing, and it's going to be a challenge to get our arms around that. That's primarily because this would be the first time it's been applied to money funds. It's usually used with other variable NAV funds like stock and bond funds, and really primarily in the EU. So this is relatively new territory for money market funds. There are still many details to be worked out, but conceptually and based on the broad outlines in the proposing release, it would work something like this: fund complexes would have to calculate a swing factor to apply to net redemptions during any given pricing period, and the swing factor would adjust the NAV downward for those shareholders that are redeeming shares. The size of the downward revision depends on the size of the net redemption."
White tells us, "Since many of these costs are non-existent or minimal for these types of securities and for funds that are already pricing on the side of the market, there would be no spread adjustment. However, if redemptions exceed the market cap threshold, in other words, they're relatively large, then you'd have to add an estimate of how much [it costs to] trade a slice of the total portfolio ... if you had to sell it immediately. Now, this would have resulted in a larger factor for larger redemptions, as well as taking into account whether or not markets are stressed."
Please join us for Crane's Money Fund University, which takes place online Thursday and Friday afternoon (1/20-21) from 1-4pm EST. MFU is a "basic training" course in the money markets that includes access to the live webinar, handouts and a number of pre-recorded sessions. Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics. The event also focuses on hot topics like money market fund regulations, money fund alternatives, offshore markets, and other recent industry trends. Registrations ($250) are still being taken, and the agenda is available here. (Note: Crane Data Subscribers and MFU Attendees may access conference materials and recordings via our "Money Fund University 2022 Download Center.")
Money Fund University offers a 2-day crash course on money market mutual funds, educating attendees on the history of money funds, the Fed, interest rates, ratings, rankings, and money market instruments such as commercial paper, Treasury bills, CDs and repo. We also cover portfolio construction and credit analysis. Our educational conference features a faculty of the money fund industry's top lawyers, strategists, and portfolio managers. New portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of "cash" investing should benefit from our comprehensive program. Even experienced professionals may enjoy a refresher course and the opportunity to interact with peers in an informal setting.
We'd like to thank our current and past MFU sponsors -- BlackRock, S&P Global Ratings, TD Securities, Fitch Ratings, Dreyfus CIS, J.P. Morgan Asset Management, Dechert LLP, Fidelity Investments, State Street and Federated Hermes -- for their support, and we look forward to seeing you online later today! E-mail Pete Crane (pete@cranedata.com) for the latest brochure or visit www.moneyfunduniversity.com for more details.
Crane Data is also preparing for our next Bond Fund Symposium, which will be held March 28-29, 2022, at the Hyatt Regency in Newport Beach, Calif. We're making plans for our next "big show," Money Fund Symposium, too, which will be held June 20-22, 2022, at the Hyatt Regency in Minneapolis. Finally, mark your calendars for our next European Money Fund Symposium, which will be held Sept. 27-28, 2022, in Paris, France. Watch for more details on these shows in coming weeks and months, and note that the recordings and materials from our past events are available to Crane Data subscribers at the bottom of our "Content" page.
In other 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 Jan. 12 News, "` Jan. MF Portfolio Holdings: Repo Soars to Almost 50%, Led by Fed RRP <i:https://cranedata.com/archives/all-articles/9085/>`_."
The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in December, prime money market funds held 34.6 percent of their portfolios in daily liquid assets and 47.9 percent in weekly liquid assets, while government money market funds held 84.6 percent of their portfolios in daily liquid assets and 92.2 percent in weekly liquid assets." Prime DLA was up from 29.2% in November, and Prime WLA was up from 47.7%. Govt MMFs' DLA increased from 84.3% in November and Govt WLA increased from 92.1% the previous month.
ICI explains, "At the end of December, prime funds had a weighted average maturity (WAM) of 41 days and a weighted average life (WAL) of 59 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 36 days and a WAL of 80 days." Prime WAMs were four days shorter than November, while WALs were one day lower than the previous month. Govt WAMs were one day shorter and WALs were two days shorter than November, respectively.
Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas rose from $169.25 billion in November to $235.59 billion in December. Government money market funds' holdings attributable to the Americas rose from $3,760.31 billion in November to $3,972.38 billion in December."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $235.6 billion, or 53.6%; Asia and Pacific at $92.2 billion, or 21.0%; Europe at $108.3 billion, or 24.6%; and, Other (including Supranational) at $3.6 billion, or 0.9%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.972 trillion, or 93.5%; Asia and Pacific at $116.4 billion, or 2.7%; Europe at $152.9 billion, 3.6%, and Other (Including Supranational) at $7.3 billion, or 0.2%.
In related news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Jan. 14) includes Holdings information from 62 money funds (down from 78 two weeks ago), which represent $2.147 trillion (down from $2.498 trillion) of the $4.971 trillion (50.3%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.017 trillion (down from $1.223 trillion two weeks ago), or 47.4%; Treasuries totaling $843.0 billion (down from $951.0 billion two weeks ago), or 39.3%, and Government Agency securities totaling $112.8 billion (down from $145.8 billion), or 5.3%. Commercial Paper (CP) totaled $59.7 billion (up from two weeks ago at $68.9 billion), or 2.8%. Certificates of Deposit (CDs) totaled $39.4 billion (down from $45.3 billion two weeks ago), or 1.8%. The Other category accounted for $55.9 billion or 2.6%, while VRDNs accounted for $19.3 billion, or 0.9%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $843.0 billion (39.3% of total holdings), the Federal Reserve Bank of New York with $611.2B (28.5%), RBC with $54.2B (2.5%), Fixed Income Clearing Corp with $52.0B (2.4%), BNP Paribas with $51.9B (2.4%), Federal Home Loan Bank with $45.3B (2.1%), Federal Farm Credit Bank with $37.3B (1.7%), Federal National Mortgage Association with $20.5B (1.0%), Canadian Imperial Bank of Commerce with $20.1B (0.9%) and Mitsubishi UFJ Financial Group Inc with $19.3B (0.9%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($246.3B), Goldman Sachs FS Govt ($225.2B), Morgan Stanley Inst Liq Govt ($151.4B), Allspring Govt MM ($132.7B), Fidelity Inv MM: Govt Port ($127.2B), Dreyfus Govt Cash Mgmt ($126.5B), Goldman Sachs FS Treas Instruments ($112.2B), JPMorgan 100% US Treas MMkt ($100.0B), First American Govt Oblg ($92.7B) and State Street Inst US Govt ($88.1B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
BlackRock reported its Q4'21 earnings Friday, which says the advisor expects fee waivers to cease as we get into 2022. CFO Gary Shedlin comments, "For the fourth quarter, BlackRock generated revenue of $5.1 billion and operating income of $2.1 billion, up 14% and 11%, respectively, from a year ago.... Fourth quarter base fees and securities lending revenue of $4 billion was up 17% year over year, primarily driven by 11% organic base fee growth and the positive impact of market data on average AUM, partially offset by higher discretionary money market fee waivers versus a year ago and strategic pricing investments over the last year."
He tells us, "We incurred approximately $135 million of gross discretionary yield support waivers in the fourth quarter, essentially the same as the third quarter, bringing total waivers to approximately $500 million for the full year. Given the current prospects for higher rates in the near term, we now anticipate most of these waivers would cease shortly after the first 25 basis point increase in the Fed funds rate, resulting in a one-half basis point increase to our annualized effective fee rate. Recall that approximately 50% of these gross fee waivers are generally shared with distributors, reducing the impact on operating income."
Shedlin explains, "Institutional index net outflows of $118 billion in 2021 reflected equity net outflows ... partially offset by fixed income net inflows as many large clients rebalanced portfolios after significant equity market gains or tactically shifted assets to fixed income and cash. BlackRock's institutional active franchise generated a record $169 billion of net inflows in 2021, reflecting broad-based strength across all product categories and the funding of several significant OCIO mandates. We are seeing strong momentum in our OCIO business, evidenced by another significant core fixed income funding in the fourth quarter."
He also says, "Finally, BlackRock's cash management platform generated $44 billion of net inflows in the fourth quarter and $94 billion of net inflows in 2021 as we continued to grow market share in a persistent low-rate environment by leveraging our scale, product breadth, technology and risk management on behalf of clients. It has been another strong year for BlackRock. Our global scale and diverse platform allow us to continue investing for the future, whether in good markets or more challenging ones, and our differentiated business model remains incredibly well positioned to sustain industry-leading organic growth and deliver long-term shareholder value."
During the Q&A, Shedlin replies, "We think we have very sticky assets.... We're obviously very well-positioned in terms of our broad-based fixed income platform. So whether it's unconstrained, high yield, total return or short duration, I think we've got that, so we're ready for a rotation. And more importantly, I think, really, is if rates go up, a bunch of cash is likely to come off the sidelines."
He adds, "So that will enable us to basically move that cash into other asset classes. And as I mentioned in my remarks, very importantly, we waived $500 million of fees last year in our cash business. That first 25 basis point move by the Fed, and many people think that could come as early as the first quarter, we think that will free up almost all of those waivers. That will have about a half a basis point increase on our annualized effective fee rate. And obviously, we've talked about while we share roughly half of that with our distributors, that will drop a significant amount of incremental profitability to the bottom line."
BNY Mellon also reported earnings Tuesday (see the earnings transcript here), and discussed money fund fee waivers. On the earnings call, CEO Todd Gibbons states, "Revenue of $15.9 billion was up slightly year-over-year as 2-plus percent organic growth and the benefit of higher market levels offset lower net interest revenue and higher fee waivers. Fee revenue was up 4% year-over-year and about 9% excluding the impact of money market fee waivers. And expenses were up 5% year-over-year, reflecting our investments, as well as the quality of revenue that we generated."
He continues, "$70 billion of net inflows in cash products were the highest in over a decade. We optimized our money market fund line-up to provide a more competitive and scalable offering. And with our new CIO in place, we're thrilled to see strong flows and improving market share."
CFO Emily Portney comments, "Money market fee waivers, net of distribution and servicing expense, were $243 million in the quarter, an increase of $10 million compared to the prior quarter, entirely driven by higher money market fund balances with no meaningful impact on pretax income."
She tells us, "Our expectation for continued organic growth and lower fee waivers result in total fee growth of approximately 7% in 2022. More specifically, we expect roughly 4% up to 7% increase to be driven by the recovery of money market fee waivers based on the current forward curve and assuming some runoff in money market fund balances from current levels. We expect roughly 2% to be driven by organic growth and approximately 1% by market driven factors."
During the Q&A, Portney responds, "Waivers are a function of both balances also and rates. And you're correct, we are just looking at the full -- and our guidance is baked in the forward curve with three rate hikes. We have pointed out in the past that with the first 25 basis point hike, we would expect to recoup about 50% of the waivers. Having said that, we do also expect that balances to begin to decline a bit, especially by, call it, the third or fourth hike. So we do ... expect some runoff in balances."
She adds, "So when you put it all together, we would expect money market fund waivers to be a little less than half of what they actually were in 2021. Having said that, it's very important to note that as waivers dissipate, we also do see a rise in distribution expense, and that's been captured in the expense outlook."
Crane Data's latest MFI International shows that assets in European or "offshore" money market mutual funds decreased over the past month to $1.066 trillion, after hitting a record high of $1.101 trillion the prior month. These U.S.-style money funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, decreased by $33.5 billion over the 30 days through 1/13. They're up $2.8 billion (0.3%) year-to-date. Offshore US Dollar money funds are down $8.9 billion over the last 30 days and are down $2.5 billion YTD to $532.0 billion. Euro funds dropped E10.0 billion over the past month. YTD they're down E2.7 billion to E155.6 billion. GBP money funds decreased L9.2 billion over 30 days; they are up by L6.2 billion YTD to L253.3B. U.S. Dollar (USD) money funds (190) account for half (46.7%) of the "European" money fund total, while Euro (EUR) money funds (94) make up 23.1% and Pound Sterling (GBP) funds (123) total 30.2%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Friday), below. (Note: Please join us for our Money Fund University Online ($250), which takes place online from 1-4pm EST on January 20 and 21. MFU is a "basic training" course in the money markets that includes access to handouts and a number of pre-recorded sessions. Crane Data Subscribers and MFU Attendees may access conference materials and recordings via our "Money Fund University 2022 Download Center.")
Offshore USD MMFs yield 0.03% (7-Day) on average (as of 1/13/22), the same level as 12/31/21, but down from 0.05% on 12/31/20, 1.59% on 12/31/19 and 2.29% on 12/31/18. EUR MMFs yield -0.71% on average, up from -0.80% on 12/31/21. They averaged -0.71% at year-end 2020, -0.59% at year-end 2019 and -0.49% at year-end 2018. Meanwhile, GBP MMFs yielded 0.05%, up from 0.01% on 12/31/21 and 0.00% on 12/31/20, but 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 January MFII Portfolio Holdings, with data as of 12/31/21, show that European-domiciled US Dollar MMFs, on average, consist of 23% in Commercial Paper (CP), 15% in Certificates of Deposit (CDs), 21% in Repo, 30% in Treasury securities, 10% in Other securities (primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 35.5% of their portfolios maturing Overnight, 7.7% maturing in 2-7 Days, 12.4% maturing in 8-30 Days, 15.1% maturing in 31-60 Days, 11.6% maturing in 61-90 Days, 13.6% maturing in 91-180 Days and 4.2% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (44.0%), Canada (11.9%), France (10.7%), Japan (8.9%), Australia (3.3%), the U.K. (3.2%), Germany (3.2%), Sweden (3.2%), the Netherlands (2.0%) and Switzerland (2.0%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $170.5 billion (29.7% of total assets), Fixed Income Cleaning Corp with $29.2B (5.1%), BNP Paribas with $21.1B (3.7%), Federal Reserve Bank of New York with $17.2B (3.0%), Bank of Montreal with $14.1B (2.5%), RBC with $14.0B (2.4%), Canadian Imperial Bank of Commerce with $11.6B (2.0%), Mizuho Corporate Bank Ltd with $11.3B (2.0%), Bank of America with $10.6B (1.9%) and Bank of Nova Scotia with $10.5B (1.8%).
Euro MMFs tracked by Crane Data contain, on average 39% in CP, 23% in CDs, 19% in Other (primarily Time Deposits), 9% in Repo, 9% in Treasuries and 1% in Agency securities. EUR funds have on average 12.8% of their portfolios maturing Overnight, 25.2% maturing in 2-7 Days, 17.4% maturing in 8-30 Days, 17.2% maturing in 31-60 Days, 8.3% maturing in 61-90 Days, 16.0% maturing in 91-180 Days and 3.0% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (30.1%), Japan (12.5%), the U.S. (8.9%), the U.K. (7.5%), Germany (7.2%), Sweden (5.9%), Canada (4.7%), Switzerland (4.5%), Supranational (3.0%), and Belgium (2.3%).
The 10 Largest Issuers to "offshore" EUR money funds include: Republic of France with E9.7B (6.5%), Credit Agricole with E6.0B (4.1%), Societe Generale with E5.9B (4.0%), BNP Paribas with E5.7B (3.8%), Sumitomo Mitsui Banking Corp with E5.6B (3.8%), Barclays PLC with E4.8B (3.2%), Zürcher Kantonalbank with E4.7B (3.2%), Svenska Handelsbanken with E4.5B (3.0%), Credit Mutuel with E4.2B (2.8%) and Natixis with E4.0 (2.7%).
The GBP funds tracked by MFI International contain, on average (as of 12/31/21): 41% in CDs, 23% in CP, 16% in Other (Time Deposits), 14% in Repo, 6% in Treasury and 0% in Agency. Sterling funds have on average 3.4% of their portfolios maturing Overnight, 32.2% maturing in 2-7 Days, 9.4% maturing in 8-30 Days, 21.9% maturing in 31-60 Days, 13.1% maturing in 61-90 Days, 14.6% maturing in 91-180 Days and 5.5% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: Japan (16.3%), the U.K. (16.0%), France (15.5%), Canada (12.4%), Australia (7.0%), the U.S. (5.7%), Sweden (4.6%), the Netherlands (4.2%), Germany (3.8%) and Abu Dhabi (2.9%).
The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L18.3B (8.6%), Mitsubishi UFJ Financial Group Inc with L9.4B (4.5%), Sumitomo Mitsui Banking Corp with L8.3B (3.9%), RBC with L8.3B (3.9%), Sumitomo Mitsui Trust Bank with L7.6B (3.6%), Toronto-Dominion Bank with L7.4B (3.5%), National Australia Bank Ltd with L6.8B (3.2%), Mizuho Corporate Bank Ltd with L6.2B (2.9%), Standard Chartered Bank with L6.1B (2.9%) and BPCE SA with L6.1B (2.9%).
In related news, Reuters writes that "China tightens screws on big money market funds." Their article says, "China's securities regulator published draft rules on Friday to strengthen supervision over major money market funds, a step that could further rein in Ant Group's Yu'e Bao. The draft rules will tighten scrutiny over money market funds with a large size or a great number of investors, to protect investors' interest. 'Major' funds are defined by the rules as those with more than 200 billion yuan ($31.49 billion) in net assets, or with over 50 million investors."
It explains, "Yu'e Bao, controlled by Ant Group, the payment affiliate of Alibaba Group Holding Ltd (9988.HK), is China's biggest money market fund with 764.6 billion in net assets by the end of September. The new rules 'will further strengthen fund managers' risk-management ability, improve product resilience, and ensure safety and liquidity' of investments, the China Securities Regulatory Commission (CSRC) said in a statement. It did not name any companies."
Reuters adds, "In April last year, China's central bank urged Ant to reduce the size of Yu'e Bao. Yu'e Bao, previously the world's biggest money market fund, has already seen its asset under management (AUM) more than halve from its peak of 1.7 trillion yuan in early 2018. According to Friday's rules, major money market funds 'must not expand blindly', and their managers' pay must not be linked to the fund size. In addition, fund managers must set aside 40% of the management fees as risk reserves, and should put in place more stringent risk control measures, and increase the frequency of stress tests."
The January issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the lead story, "Top Stories & Funds of '21: Record Assets; But '22 Cloudy," which reviews some highlights of the past year and "Worldwide BF Assets Rise to $13.6 Trillion, Led by U.S.," which takes a closer look at bond fund markets outside the U.S. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns rose in December and yields jumped. 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. Start making plans too for our Bond Fund Symposium, which will take place March 28-29 in Newport Beach, Calif.)
BFI's "Top Stories" piece reads, "While 2021 was another good year for bond funds, it appears the party may finally be coming to an end. Bond funds and bond ETFs once again experienced strong inflows, as bond funds broke above $5.6 trillion and bond ETFs broke above $1.2 trillion. But returns were almost entirely erased in the closing weeks of the year as the market prepares for Fed rate hikes in 2022. Below, we review last year's top stories from BFI, and also list the top-performing funds from 2021."
It continues, "Bond fund assets saw their second straight year of $500 billion plus and double-digit asset gains. They stood at $5.630 trillion as of Nov. 30, 2021, up $507.8 billion, or 10.0%, from a year earlier, according to ICI data. Bond ETFs totaled $1.213 trillion on 11/30/21, up $175.1 billion, or 16.9%, over 12 months. (Bond fund assets fell by $14.7 billion while Bond ETFs rose by $12.2 billion in December, according to our BFI.) We show bond funds averaging returns of 0.76% in 2021, after returning 5.19% in 2020 and -7.46% in 2019."
The Worldwide article states, "Bond fund assets worldwide increased moderately in the latest quarter to $13.6 trillion, led by the four largest bond fund markets -- the U.S., Luxembourg, Ireland and Germany. We review the ICI's 'Worldwide Open-End Fund Assets and Flows, Third Quarter 2021' release and statistics below."
ICI tells us, "Globally, bond funds posted an inflow of $337 billion in the third quarter of 2021, after recording an inflow of $304 billion in the second quarter. Inflows from balanced/mixed funds worldwide totaled $175 billion in the third quarter of 2021, compared with $120 billion of inflows in the second."
Our article adds, "According to Crane Data's analysis of ICI data, the U.S. had $6.788 trillion in bond fund assets as of Sept. 30, 2021, representing 49.8% of the worldwide market. U.S. bond fund assets were up $131.0 billion in the quarter, or 2.0%. Over the past year, U.S. bond fund assets increased by $824.6 billion, or 13.8%."
Our first News brief, "Returns Rebound, Yields Jump in Dec," comments, "Bond fund yields surged higher and returns also rose last month. Our BFI Total Index gained 0.20% over 1-month but rose just 0.76% over 12 months. The BFI 100 returned 0.16% in Dec. and 0.73% over 1-year. Our BFI Conservative Ultra-Short Index was down 0.01% for 1-month but flat (0.00%) for 1-year; Ultra-Shorts rose 0.03% and 0.32%, respectively. Short-Term increased 0.02% and 0.26%, and Intm-Term rose 0.00% in Dec. and fell 0.25% over 1-year. BFI's Long-Term Index fell 0.20% in Dec. and fell 0.80% over 1-year. Our High Yield Index rose 1.41% in Dec. and gained 4.76% over 1-year."
We also quote from "Morningstar's '2021: The Year in Bond Funds.' They write, "Bond markets had to contend with a rocky 2021 characterized by rising inflation, a bumpier economic recovery, and the start of tighter monetary policy. The threat of inflation gathered pace over the year, unnerving government-bond markets in the process and culminating in the Federal Reserve's hawkish pivot in the fourth quarter. Meanwhile, the stretch for yield that began in 2020 continued, with lower-quality credit surging for much of the year."
A third News brief is headlined, "The WSJ Says, 'ETFs Claim More of Muni Market.'" They tell us, "Municipal bond investors are piling into exchange-traded funds, attracted by low costs and the ability to trade quickly. Muni ETFs held $80 billion as of the end of the third quarter, up from less than $50 billion two years ago, Federal Reserve data shows. Citigroup projects they will hold $125 billion by December 2022.... ETF sponsors such as BlackRock Inc. report that muni ETFs have helped bring in client cash."
Yet another News brief, "Bloomberg Asks, '`What Happens When Bonds Lose Money?' explains, "Early January is when many investors give their portfolios a checkup, and this year a sting awaits from the bond market. While equity returns dazzled in 2021, 'safe' government bonds registered their first negative return since 2013.... Except the sanctuary of government bonds cracked last year, with the Bloomberg Treasury index providing a total return of -2.3%. A broader exposure to fixed income that includes debt from high-quality companies, the Vanguard Total Bond Market Index Fund, lost 1.67% last year, its first down year since 2018 <b:>`_ -- the last time the central bank raised its key overnight interest rate."
A BFI sidebar, "Federated Launches ETFs," quotes a press release that tells us, "Federated Hermes ... launched the Federated Hermes Short Duration Corporate ETF and Federated Hermes Short Duration High Yield ETF.... These short-duration ETFs are new tools for investors concerned about inflation and the potential interest-rate risk associated with products that invest in longer-duration securities."
Finally, another sidebar, "Bond Funds Hit Record $5.6T," tells readers, "Bond fund assets inched up to a record $5.6 trillion and bond ETFs hit a record $1.213 trillion last month. But outflows and losses have appeared in recent days. ICI's 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance' comments, 'Bond funds had estimated inflows of $9.47 billion for the week, compared to estimated inflows of $888 million during the previous week. Taxable bond funds saw estimated inflows of $7.78 billion, and municipal bond funds had estimated inflows of $1.69 billion.' Over the past 5 weeks, bond funds and ETFs have seen inflows of $3.6 billion."
As we wrote earlier this month (and reprint here), our January MFI issue recognizes the top performing money funds, ranked by total returns, for calendar year 2021, as well as the top funds for the past 5-year and 10-year periods. We present the funds below with our annual Money Fund Intelligence Awards. These are given to the No. 1‐ranked funds based on 1-year, 5-year and 10-year returns, through Dec. 31, 2021, in each of our major fund categories — Prime Institutional, Government Institutional, Treasury Institutional, Prime Retail, Government Retail, Treasury Retail and Tax‐Exempt. (Note: We're still taking registrations ($250) for our upcoming Money Fund University Online, which takes place the afternoons of Jan. 20-21. Crane Data Subscribers and MFU Attendees may visit the "Money Fund University 2022 Download Center" to access conference materials and recordings.)
The Top-Performing Prime Institutional fund (and fund overall) was BlackRock Cash Inst MMF SL (BRC01) and JPMorgan Sec Lending MM Agency SL (VSLXX), which returned 0.09%, Excluding private and internal funds, the best performer in 2021 was DWS ESG Liquidity Inst (ESGXX) with a return of 0.08%. Among Prime Retail funds, JPMorgan Liquid Assets Capit (CJLXX) had the best return in 2021 (0.04%). The Top‐Performing Govt Institutional fund in 2021 was Fidelity Flex Govt Money Market Fund (FLGXX), which returned 0.09%. Davis Government MMF A (RPGXX) was the Top Government Retail fund over 1‐year with a return of 0.04%. Northern Trust AM Treas Assets Fund (NOR01) and T Rowe Price Treas Reserve Fund (TRP02) ranked No. 1 in the Treasury Institutional class with a return of 0.05%. Allspring 100% Treas MM A (WFTXX) was No. 1 among Treasury Retail funds, returning 0.02%.
For the 5‐year period through Dec. 31, 2021, BlackRock Cash Inst MMF SL (BRC01) took top honors for the best performing Prime Institutional money fund with a return of 1.32%. DWS ESG Liquidity Cap (ESIXX) ranked first (1.27%) when private funds were excluded. Fidelity Inv MM: MM Port Inst (FNSXX) ranked No. 1 among Prime Retail with an annualized return of 1.22%. Fidelity Series Govt Money Market Fund (FGNXX) ranked No. 1 among Govt Institutional funds with a return of 1.12%, while Vanguard Federal Money Mkt Fund (VMFXX) ranked No. 1 among Govt Retail funds over the past 5 years with a return of 1.04%. BlackRock Cash Treas MMF SL (BRC03) ranked No. 1 in 5‐year performance among Treasury Inst funds with a return of 1.04%. JPMorgan US Trs Plus MM IM (MJPXX) was first excluding internal funds (1.02%). Vanguard Treasury Money Market (VUSXX) ranks No. 1 among Treasury Retail funds with a return of 1.04%.
The highest performers of the past 10 years and No. 1 among Prime Inst MMFs were both BlackRock Cash Inst MMF SL (BRC01) and DWS ESG Liquidity Cap (ESIXX), which returned 0.80%. Fidelity Inv MM: MM Port Inst (FNSXX), which returned 0.72%, was best among Prime Retail. Dreyfus Inst Pref Govt Plus MF (DRF03) and UBS Liquid Assets Govt Fund (UBS02), returned 0.61% and ranked No. 1 among Govt Inst funds. Vanguard Federal Money Mkt Fund (VMFXX) ranked No. 1 among Govt Retail funds, returning 0.55%. BlackRock Cash Treas MMF SL (BRC03) and Fidelity Inv MM: Treas Port Inst (FRBXX) returned the most among Treasury Inst funds over the past 10 years at 0.56% and 0.53%, respectively. Vanguard Treasury Money Market (VUSXX) ranked No. 1 among Treasury Retail money market funds at 0.55%.
We're also giving out awards for the best-performing Tax-Exempt money funds. Fidelity Tax-Exempt Capital Res (FERXX) ranked No. 1 among T-E funds over 1-year with a return of 0.07%. Federated Hermes Muni Obligs WS (MOFXX) ranked No. 1 for the 5-year and 10-year period ended Dec. 31, 2021, with returns of 0.84% and 0.48%, respectively.
See the MFI Award Winner listings on page 6 of MFI, and see our latest Money Fund Intelligence XLS for more detailed rankings. The tables on page 6 show the No. 1 ranked money fund for each category based on 1-year, 5-year, and 10-year annualized total returns.
In other news, Capital Advisors Group recently published a new investment research piece titled, "Rates, Supply Chain, ESG and Stablecoins: Three (+1) Themes to Watch in 2022." They start by saying, "It has been our tradition to offer up three broad themes that will likely have the greatest impact on cash investments in the new year.... A year ago, our crystal ball told us that 2021 would be impacted by strong vaccine rollouts, ESG going mainstream, and SOFR replacing LIBOR as benchmarks. All three turned out to be right on point."
The section, "Stablecoins and Liquidity Market (In)stability," written by Lance Pan, begins, "In recent months, a class of crypto (or digital) currencies received increasing regulatory attention for their potential to cause unknown harm to short-term market stability. Governmental bodies including the Fed, the Treasury Department, the Securities and Exchange Committee (SEC), and the President's Working Group on Financial Markets have taken notice of stablecoins, previously an obscure corner of crypto space."
It tells us, "What's all this got to do with me, the boring cash investor, you may ask? Well, plenty. Think of stablecoins as unregulated shadow cash pools competing with the largest prime market funds for deposits and short-term investments, especially in commercial paper and similar credit instruments. With rapid growth and their association with the highly volatile crypto market, one or more of these collateral portfolios may need to be unwound quickly, leading to a liquidity crunch that could take investors of commercial paper and other liquid investments by surprise. How stablecoins evolve and how soon the regulators can catch up to them may be a meaningful risk concern in 2022."
Pan explains, "Unlike well-known but volatile crypto assets like Bitcoin and Ethereum, stablecoins are so named because they are designed to provide price stability by pegging values to real financial assets as collateral, including dollar denominated bank deposits and commercial paper and commodities. The practical purpose of a stablecoin is to serve as a medium of exchange between real money and crypto assets, facilitating the conversion and storage of funds on coin exchanges or in virtual wallets. In essence, stablecoins are to crypto traders what checking and money market accounts are to stock traders. If virtual and real money flow in their respective streams, cash investors need not be concerned with the crypto goings-on. But recent data shows that is not the case: stablecoins are gobbling up a lot of real liquid assets as collateral, essentially turning into large shadow money market funds without regulatory oversight."
He says, "According to CoinmarketCap.com, the top five stablecoins command a market cap of $151 billion. This compares to the combined balance of the five largest prime institutional money market funds of $97 billion." A footnote that sources Crane Data adds, "The five largest prime institutional money market funds (excluding internal portfolios) are: JPMorgan Prime ($43 billion), Morgan Stanley Institutional Liquidity Prime Institutional ($16 billion), JPMorgan Prime MM I ($15 billion), Federated Hermes Inst Prime Obligations IS ($12 billion) and State Street Inst Liquid Res Prem ($11 billion).
The research piece comments, "While cash investors are still focused on how to fix prime funds' run risk, the crypto coins, which dabble in the same liquid assets but loom larger by the day, can be a greater harm due to the lack of transparency in their holdings and lack of regulatory oversight. For example, Tether, the largest stablecoin, discloses its collateral portfolio valuation only quarterly. Of the $62.8 billion in assets it held as of June 30th, 2021, roughly 50% was in commercial paper and certificates of deposit, 24% in T-bills, 10% in cash and bank deposits, and the rest in other instruments. Of its CP and CD holdings, less than 48% were rated A-1 or better. USD Coin, the second largest coin, discloses its holdings monthly, which are said to be cash and cash equivalents in US dollar deposits and short-term liquid investments, but with no details offered."
It concludes, "US financial authorities including the Fed, Treasury and the SEC have taken notice of this potential threat to financial stability. Congress also held hearings on related subjects. We are, however, skeptical of an immediate and effective safety measure forthcoming. Investors wary of unexpected sources of instability in the cash investment world should keep an eye on the crypto space, particularly stablecoins' collateral values and their portfolio turnovers."
Crane Data's January Money Fund Portfolio Holdings, with data as of Dec. 31, 2021, show Repo skyrocketing in December and Treasuries inching higher, while every other holding category declined. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) rose by $114.1 billion to $5.086 trillion in December, after rising by $46.4 billion in November and $72.4 billion in October. Assets decreased $26.0 billion in Sept., increased $47.4 billion in August and decreased $89.1 billion in July. They increased by $1.5 billion in June, $30.2 billion in May and $29.1 billion in April. Repo remained the largest portfolio segment, while Treasuries remained in the No. 2 spot. MMF holdings of Fed repo rose to $1.732 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.
Among taxable money funds, Repurchase Agreements (repo) jumped $228.0 billion (10.1%) to $2.482 trillion, or 48.8% of holdings, in December, after increasing $113.6 billion in November, declining $107.9 billion in October and rising $299.8 billion in Sept. Treasury securities increased $19.9 billion (1.1%) to $1.806 trillion, or 35.5% of holdings, after decreasing $52.6 billion in November, increasing $158.2 billion in October, and falling $262.4 billion in Sept. Government Agency Debt was down $26.7 billion, or -6.3%, to $396.4 billion, or 7.8% of holdings, after decreasing $10.1 billion in November, $27.3 billion in October and $31.3 billion in Sept. Repo, Treasuries and Agency holdings totaled $4.685 trillion, representing a massive 92.1% of all taxable holdings.
Money fund holdings of CP, CDs and Other (mainly Time Deposits) were all down sharply in December. Commercial Paper (CP) decreased $29.9 billion (-12.1%) to $216.8 billion, or 4.3% of holdings, after decreasing $3.0 billion in November, but increasing $8.2 billion in Oct. and $3.1 billion in Sept. Other holdings, primarily Time Deposits, declined by $58.4 billion (-50.3%) to $57.8 billion, or 1.1% of holdings, after declining $4.7 billion in Nov. $32.7 billion in Oct., $32.7 billion in Sept., and $4.7 billion in August. Certificates of Deposit (CDs) decreased by $21.9 billion (-16.8%) to $108.7 billion, or 2.1% of taxable assets, after increasing $3.0 billion in Nov. and $7.4 billion in Oct., but falling $3.8 billion in Sept. VRDNs increased to $17.4 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 Wednesday.)
Prime money fund assets tracked by Crane Data fell to $796 billion, or 15.7% of taxable money funds' $5.086 trillion total. Among Prime money funds, CDs represent 13.6% (down from 16.3% a month ago), while Commercial Paper accounted for 27.3% (down from 30.8% in Nov.). The CP totals are comprised of: Financial Company CP, which makes up 19.4% of total holdings, Asset-Backed CP, which accounts for 4.4%, and Non-Financial Company CP, which makes up 3.5%. Prime funds also hold 3.3% in US Govt Agency Debt, 11.4% in US Treasury Debt, 26.9% in US Treasury Repo, 0.3% in Other Instruments, 4.4% in Non-Negotiable Time Deposits, 6.6% in Other Repo, 2.7% in US Government Agency Repo and 1.0% in VRDNs.
Government money fund portfolios totaled $2.960 trillion (58.2% of all MMF assets), up from $2.872 trillion in Nov., while Treasury money fund assets totaled another $1.330 trillion (26.2%), up from $1.299 trillion the prior month. Government money fund portfolios were made up of 12.5% US Govt Agency Debt, 9.8% US Government Agency Repo, 28.2% US Treasury Debt, 49.2% in US Treasury Repo, 0.2% in Other Instruments. Treasury money funds were comprised of 66.2% US Treasury Debt and 33.7% in US Treasury Repo. Government and Treasury funds combined now total $4.290 trillion, or 84.3% of all taxable money fund assets.
European-affiliated holdings (including repo) dropped by $189.7 billion in Dec. to $345.7 billion; their share of holdings plunged to 6.8% from last month's 10.8%. Eurozone-affiliated holdings decreased to $242.1 billion from last month's $388.7 billion; they account for 4.8% of overall taxable money fund holdings. Asia & Pacific related holdings inched lower to $214.7 billion (4.2% of the total) from last month's $215.0 billion. Americas related holdings jumped to $4.522 trillion from last month's $4.217 trillion, and now represent 88.9% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $280.2 billion, or 15.2%, to $2.119 trillion, or 41.7% of assets); US Government Agency Repurchase Agreements (down $49.6 billion, or -13.8%, to $310.4 billion, or 6.1% of total holdings), and Other Repurchase Agreements (down $2.6 billion, or -4.7%, from last month to $52.7 billion, or 1.0% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $18.7 billion to $154.5 billion, or 3.0% of assets), Asset Backed Commercial Paper (up $0.7 billion to $34.8 billion, or 0.7%), and Non-Financial Company Commercial Paper (down $11.9 billion to $27.5 billion, or 0.5%).
The 20 largest Issuers to taxable money market funds as of Dec. 31, 2021, include: the US Treasury ($1.806 trillion, or 35.5%), Federal Reserve Bank of New York ($1.732T, 34.1%), Federal Home Loan Bank ($216.0B, 4.2%), RBC ($121.6B, 2.4%), Federal Farm Credit Bank ($97.6B, 1.9%), Fixed Income Clearing Corp ($96.4B, 1.9%), BNP Paribas ($77.5B, 1.5%), Sumitomo Mitsui Banking Co ($58.6B, 1.2%), Bank of Montreal ($49.6B, 1.0%), Federal National Mortgage Association ($48.4B, 1.0%), JP Morgan ($47.9B, 0.9%), Mitsubishi UFJ Financial Group Inc ($41.8B, 0.8%), Canadian Imperial Bank of Commerce ($39.2B, 0.8%), Citi ($34.9B, 0.7%), Bank of America ($34.8B, 0.7%), Toronto-Dominion Bank ($32.6B, 0.6%), Federal Home Loan Mortgage Corp ($31.1B, 0.6%), Bank of Nova Scotia ($26.2B, 0.5%), Nomura ($24.7B, 0.5%) and Barclays ($24.4B, 0.5%).
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 ($1.732T, 69.8%), RBC ($101.5B, 4.1%), Fixed Income Clearing Corp ($96.4B, 3.9%), BNP Paribas ($70.1B, 2.8%), Sumitomo Mitsui Banking Corp ($43.8B, 1.8%), JP Morgan ($42.3B, 1.7%), Mitsubishi UFJ Financial Group Inc ($33.1B, 1.3%), Bank of America ($31.5B, 1.3%), Citi ($30.4B, 1.2%) and Bank of Montreal ($28.6B, 1.2%). The largest users of the $1.378 trillion in Fed RRP included: JPMorgan US Govt MM ($112.0B), Goldman Sachs FS Govt ($109.6B), BlackRock Lq FedFund ($103.5B), Fidelity Govt Money Market ($103.3B), Fidelity Govt Cash Reserves ($93.1B), Morgan Stanley Inst Liq Govt ($91.2B), BlackRock Lq T-Fund ($83.0B), Vanguard Federal Money Mkt Fund ($79.4B), Federated Hermes Govt ObI ($65.3B) and Dreyfus Govt Cash Mgmt ($60.5B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Bank of Montreal ($21.0B, 6.3%), RBC ($20.1B, 6.0%), Toronto-Dominion Bank ($18.7B, 5.6%), Bank of Nova Scotia ($17.4B, 5.2%), Mizuho Corporate Bank Ltd ($16.1B, 4.8%), Sumitomo Mitsui Banking Corp ($14.7B, 4.4%), Canadian Imperial Bank of Commerce ($14.2B, 4.2%), Sumitomo Mitsui Trust Bank ($11.4B, 3.4%), Australia & New Zealand Banking Group Ltd ($11.2B, 3.3%), National Australia Bank Ltd ($9.5B, 2.8%).
The 10 largest CD issuers include: Bank of Montreal ($11.8B, 10.9%), Sumitomo Mitsui Banking Corp ($11.1B, 10.2%), Canadian Imperial Bank of Commerce ($8.3B, 7.6%), Toronto-Dominion Bank ($7.3B, 6.7%), Mitsubishi UFJ Financial Group Inc ($5.4B, 5.0%), Sumitomo Mitsui Trust Bank ($5.3B, 4.9%), Mizuho Corporate Bank Ltd ($5.1B, 4.7%), Svenska Handelsbanken ($4.7B, 4.4%), Bank of Nova Scotia ($4.7B, 4.3%) and Barclays PLC ($4.0B, 3.7%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($14.0B, 7.4%), Toronto-Dominion Bank ($10.4B, 5.5%), Bank of Nova Scotia ($9.7B, 5.1%), UBS AG ($8.8B, 4.7%), National Australia Bank Ltd ($7.3B, 3.8%), Bank of Montreal ($7.3B, 3.8%), Societe Generale ($6.7B, 3.6%), BNP Paribas ($6.5B, 3.4%), Skandinaviska Enskilda Banken AB ($6.4B, 3.4%) and Sumitomo Mitsui Trust Bank ($6.0B, 3.1%).
The largest increases among Issuers include: Federal Reserve Bank of New York (up $353.8B to $1.732T), US Treasury (up $19.9B to $1.806T), Bank of Montreal (up $8.7B to $49.6B), Federal Farm Credit Bank (up $6.1B to $97.6B), Nomura (up $3.8B to $24.7B), Bank of Nova Scotia (up $3.8B to $26.2B), RBC (up $2.4B to $121.6B), UBS AG (up $1.9B to $9.7B), Sumitomo Mitsui Banking Corp (up $1.5B to $58.6B) and National Bank of Canada (up $1.2B to $6.2B).
The largest decreases among Issuers of money market securities (including Repo) in December were shown by: Fixed Income Clearing Corp (down $40.7B to $96.4B), Credit Agricole (down $33.7B to $21.6B), BNP Paribas (down $30.0B to $77.5B), Federal Home Loan Bank (down $21.5B to $216.0B), Societe Generale (down $19.0B to $18.9B), Barclays PLC (down $14.5B to $24.4B), ABN Amro Bank (down $8.6B to $8.1B), Bank of America (down $7.8B to $34.8B), Banco Santander (down $7.1B to $4.5B) and Federal Home Loan Mortgage Corp (down $6.6B to $31.1B).
The United States remained the largest segment of country-affiliations; it represents 83.4% of holdings, or $4.240 trillion. Canada (5.6%, $282.3B) was in second place, while Japan (3.9%, $199.5B) was No. 3. France (2.9%, $148.0B) occupied fourth place. The United Kingdom (1.2%, $62.6B) remained in fifth place. Australia (0.7%, $35.6B) was in sixth place, followed by The Netherlands (0.6%, $28.7B), Germany (0.5%, $24.7B), Switzerland (0.4%, $18.6B) and Sweden (0.4%, $17.9B). (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 Dec. 31, 2021, Taxable money funds held 55.6% (up from 53.1%) of their assets in securities maturing Overnight, and another 7.7% maturing in 2-7 days (down from 9.9%). Thus, 63.4% in total matures in 1-7 days. Another 6.1% matures in 8-30 days, while 9.0% matures in 31-60 days. Note that over three-quarters, or 78.5% 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 7.6% of taxable securities, while 9.8% matures in 91-180 days, and just 4.1% 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 Tuesday, and we'll be writing our regular monthly update on the December 31 data for Wednesday's News. But we also uploaded a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Monday. (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 Dec. 31, includes holdings information from 1,019 money funds (down one fund from last month), representing assets of $5.229 trillion (up from $5.134 trillion). Prime MMFs now total $811.8 billion, or 15.5% of the total. We review the new N-MFP data below, and we also look at our revised MMF expense data. (Note: Again, we've cancelled our physical Money Fund University but will host a virtual event on January 20-21. Registration for MFU Online is $250. Click here for the latest agenda and here to register.)
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds fell to a still massive $2.496 trillion (up from $2.285 trillion), or 47.7% of all assets. Treasury holdings totaled $1.822 trillion (up from $1.802 trillion), or 34.8% of all holdings, and Government Agency securities totaled $409.9 billion (down from $437.2 billion), or 7.8%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.728 trillion, or a massive 90.3% of all holdings.
Commercial paper (CP) totals $225.5 billion (down from $256.4 billion), or 4.3% of all holdings, and the Other category (primarily Time Deposits) totals $96.7 billion (down from $154.7 billion), or 1.8%. Certificates of Deposit (CDs) total $108.7 billion (down from $130.7 billion), 2.1%, and VRDNs account for $70.2 billion (up from $68.2 billion last month), or 1.3% of money fund securities.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $157.7 billion, or 3.0%, in Financial Company Commercial Paper; $35.2 billion or 0.7%, in Asset Backed Commercial Paper; and, $32.6 billion, or 0.6%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($2.128 trillion, or 40.7%), U.S. Govt Agency Repo ($409.9B, or 7.8%) and Other Repo ($52.9B, or 1.0%).
The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $221.9 billion (down from $252.6 billion), or 27.3%; Repo holdings of $290.5 billion (up from $228.5 billion), or 35.8%; Treasury holdings of $95.9 billion (up from $67.8 billion), or 11.8%; CD holdings of $108.7 billion (up from $130.7 billion), or 13.4%; Other (primarily Time Deposits) holdings of $57.3 billion (down from $114.7 billion), or 7.1%; Government Agency holdings of $28.4 billion (down from $31.4 billion), or 3.5% and VRDN holdings of $9.1 billion (up from $6.7 billion), or 1.1%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $157.7 billion (down from $175.9 billion), or 19.4%, in Financial Company Commercial Paper; $35.2 billion (up from $34.4 billion), or 4.3%, in Asset Backed Commercial Paper; and $29.0 billion (down from $42.2 billion), or 3.6%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($216.8 billion, or 26.7%), U.S. Govt Agency Repo ($20.9 billion, or 2.6%), and Other Repo ($52.8 billion, or 6.5%).
In other news, money fund charged expense ratios rose in December to 0.08% from 0.07% the prior month. Charged expenses hit their record low of 0.06% in May 2021 but remained at 0.07% for most the second half of last year. Our Crane 100 Money Fund Index and Crane Money Fund Average were both were 0.08% as of Dec. 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 Monday 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 0.08%, one bps higher than last month's level (and two 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 19 bps, or 70% of normally charged expenses. The Crane Money Fund Average, a simple average of all taxable MMFs, also showed a charged expense ratio of 0.08% as of Dec. 31, 2021, one bps higher than the month prior but down from 0.40% at year-end 2019.
Prime Inst MFs expense ratios (annualized) average 0.13% (up 1 basis point from last month), Government Inst MFs expenses average 0.05% (unchanged), Treasury Inst MFs expenses average 0.06% (up 1 bps from last month). Treasury Retail MFs expenses currently sit at 0.06%, (up 1 bps from last month), Government Retail MFs expenses yield 0.06% (up 1 bps from last month). Prime Retail MF expenses averaged 0.15% (up two bps). Tax-exempt expenses were up five basis points over the month to 0.13% on average.
Gross 7-day yields inched higher on average for the month ended Dec. 31, 2021. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 741), shows a 7-day gross yield of 0.09%, unchanged from the prior month. The Crane Money Fund Average is down from 1.72% at the end of 2019 and down from 0.15% the end of 2020. Our Crane 100's 7-day gross yield was up one bps, ending the month at 0.10%.
According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is approximately $4.043 billion (as of 12/31/21). Our estimated annualized revenue totals increased from $3.598 last month and are noticeably higher than the record low of $2.927 in May. Annualized MMF revenues have fallen from $6.028 trillion at the end of 2020 and $10.642 trillion at the end of 2019. Charged expenses and gross yields are driven by a number of variables, but revenues should surge in coming months if the Federal Reserve begins raising interest rates as expected.
Crane Data's latest monthly Money Fund Market Share rankings show assets were mostly higher among U.S. money fund complexes in December. Money market fund assets increased $104.6 billion, or 2.1%, last month to $5.148 trillion. Assets increased by $164.7 billion, or 3.3%, over the past 3 months; they've increased by $411.6 billion, or 8.7%, over the past 12 months through Dec 31. The largest increases among the 25 largest managers last month were seen by BlackRock, Northern, Federated Hermes, SSGA and Vanguard, which grew assets by $30.7 billion, $18.3B, $16.2B, $10.4B and $6.4B, respectively. The largest declines in December were seen by Allspring, T Rowe Price, AllianceBernstein and Goldman Sachs, which decreased by $5.8 billion, $3.1B, $1.5B and $1.1B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals, and look at money fund yields in December, below. (Note: We've cancelled our physical Money Fund University but will host a virtual event the afternoons of January 20-21. Registration for MFU Online is $250. Click here for the latest agenda and here to register or e-mail us to request the latest brochure.)
Over the past year through Dec. 31, 2021, BlackRock (up $96.1B, or 22.0%), Morgan Stanley (up $89.0B, or 39.8%), Dreyfus (up $67.9B, or 34.8%), Goldman Sachs (up $67.4B, or 21.4%) and JPMorgan (up $62.6B, or 15.1%) were the largest gainers. BlackRock, Northern, Dreyfus, Federated Hermes and JPMorgan had the largest asset increases over the past 3 months, rising by $31.4B, $28.8B, $23.4B, $22.0B and $13.6B, respectively. The largest decliners over 12 months were seen by: Charles Schwab (down $35.2B), Vanguard (down $30.8B), Allspring (down $22.5B), American Funds (down $17.8B) and UBS (down $11.4B). The largest decliners over 3 months included: Allspring (down $7.5B), Vanguard (down $3.4B), T Rowe Price (down $2.5B), PGIM (down $1.1B) and Schwab (down $656M).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $901.6 billion, or 17.5% of all assets. Fidelity was down $17M in December, up $2.7 billion over 3 mos., and down $4.3B over 12 months. BlackRock ranked second with $558.8 billion, or 10.9% market share (up $30.7B, up $31.4B and up $96.1B for the past 1-month, 3-mos. and 12-mos., respectively). JPMorgan ranked third with $472.3 billion, or 9.2% market share (up $5.9B, up $13.6B and up $62.6B). Vanguard ranked in fourth place with $462.4 billion, or 9.0% of assets (up $6.4B, down $3.4B and down $30.8B), while Goldman Sachs was the fifth largest MMF manager with $380.7 billion, or 7.4% of assets (down $1.1B, up $12.5B and up $67.4B for the past 1-month, 3-mos. and 12-mos.).
Federated Hermes was in sixth place with $348.9 billion, or 6.8% (up $16.2B, up $22.0B and up $2.6B), while Morgan Stanley was in seventh place with $297.1 billion, or 5.8% of assets (up $4.3B, up $9.4B and up $89.0B). Dreyfus ($254.1B, or 4.9%) was in eighth place (up $4.9B, up $23.4B and up $67.9B), followed by Northern ($212.6B, or 4.1%; up $18.3B, up $28.8B and up $44.1B). Allspring (formerly Wells Fargo) was in 10th place ($187.3B, or 3.6%; down $5.8B, down $7.5B and down $22.5B).
The 11th through 20th-largest U.S. money fund managers (in order) include: SSGA ($151.5B, or 2.9%), Schwab ($144.3B, or 2.8%), American Funds ($136.8B, or 2.7%), First American ($132.7B, or 2.6%), Invesco ($93.1B, or 1.8%), T. Rowe Price ($51.6B, or 1.0%), UBS ($48.7B, or 0.9%), DWS ($39.9B, or 0.8%), Western ($37.6B, or 0.7%) and HSBC ($36.8B, 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. 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 ($915.0 billion), BlackRock ($762.3B), JP Morgan ($691.4B), Goldman Sachs ($502.1B) and Vanguard ($462.4B). Federated Hermes ($357.5B) was sixth, Morgan Stanley ($355.5B) was in seventh, followed by Dreyfus/BNY Mellon ($279.4B), Northern ($243.0B) and Allspring ($187.3B), 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 January issue of our Money Fund Intelligence and MFI XLS, with data as of 12/31/21, shows that yields were flat to higher again in December for our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 741), rose to 0.02% for the 7-Day Yield (annualized, net) Average, the 30-Day Yield also inched up to 0.02%. The MFA's Gross 7-Day Yield stayed at 0.09%, and the Gross 30-Day Yield remained 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% (unchanged), and a Gross 30-Day Yield of 0.09% (unch). Our Prime Institutional MF Index (7-day) yielded 0.03% (unch) as of Dec. 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 just 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 0.01% (unch) as of Dec.31.
Gross 7-Day Yields for these indexes to end December were: Prime Inst 0.15% (unch), Govt Inst 0.07% (unch), Treasury Inst 0.06% (unch), Prime Retail 0.14% (unch), Govt Retail 0.06% (unch) and Treasury Retail 0.06% (unch). The Crane Tax Exempt Index remained at 0.10%. The Crane 100 MF Index returned on average 0.00% over 1-month, 0.00% over 3-months, 0.02% YTD, 0.02% over the past 1-year, 0.80% over 3-years (annualized), 0.96% over 5-years, and 0.52% over 10-years.
The total number of funds, including taxable and tax-exempt, unchanged in December at 893. There are currently 741 taxable funds, unchanged from the previous month, and 152 tax-exempt money funds (unchanged from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.
The January issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Friday morning, features the articles: "Highlights of '21: Assets Still Going, Waivers, Reg Debate," which discusses the surprisingly positive year for money market mutual funds; "SEC Proposes MMF Reforms, Trades Gates for Swing Pricing," which reviews the latest potential rule changes for MMFs; and, "Top Money Funds of 2021; 13th Annual MFI Awards," which examines the best performing money funds of the past year. We also sent out our MFI XLS spreadsheet Friday morning, and we've updated our database with 12/31/21 data. (Note: Money Fund Wisdom is down temporarily but should be back up next month. MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our January Money Fund Portfolio Holdings are scheduled to ship on Tuesday, Jan. 11, and our January Bond Fund Intelligence is scheduled to go out on Friday, Jan. 14.
MFI's lead article says, "While challenging, the past year was a surprisingly positive one for money market mutual funds, and 2022 looks to be even better. Money fund assets grew 9% in 2021 after jumping by 20% in 2020. While yields remained pinned to zero, the Fed RRP floor and hopes of higher rates in 2022 made the year bearable. Though another set of money fund reforms in 2022 could cause issues and further pressure Prime MMFs, a reduction in fee waivers this year and more asset inflows should make it a good one. Below, we take a look at the highlights of 2021, and also provide a brief outlook for 2022.
MFI's lead article continues, "Crane Data's numbers show assets rose by $425.3 billion, or 9.0%, to a record $5.150 trillion in 2021. ICI's narrower asset collection settled at $4.703 trillion, up by $408 billion, or 9.5%. (See the charts on page 1 and on page 5.) After plunging to zero in 2020, yields remained pinned to the floor in 2021. Our Crane 100 MF Index remained at 0.02% all year, as did our broader Crane Money Fund Average. Yields are expected to rise in the New Year, as expectations for rising rates remain high."
Our "SEC Proposes" article reads, "On December 15, the Securities & Exchange Commission proposed its latest round of Money Market Fund Reforms, which include higher liquidity levels, the removal of the emergency gates and fees regime, a new swing pricing mandate for Prime Inst MMFs and additional disclosure requirements."
The press release, "SEC Proposes Amendments to Money Market Fund Rules," tells us, "The Securities and Exchange Commission ... voted to propose amendments to certain rules that govern money market funds under the Investment Company Act of 1940.... The Commission's proposed amendments are designed, in part, to address concerns about prime and tax-exempt money market funds highlighted by these [March 2020] events." (See also the SEC's "Fact Sheet" and the full Proposal here.)
SEC Chair Gary Gensler comments, "Together, these amendments are designed to reduce the likelihood of runs on money market funds during periods of stress. They also would equip funds to better meet large redemptions, addressing concerns about redemption costs and liquidity. Given the broad reach of short-term funding markets, these proposals speak to our remit to maintain fair, orderly, and efficient markets."
Our "Top Money Funds" piece explains, "This issue recognizes the top performing money funds, ranked by total returns, for calendar year 2021, as well as the top funds for the past 5‐year and 10‐year periods. We present the funds below with our annual Money Fund Intelligence Awards. These are given to the No. 1‐ranked funds based on 1‐year, 5‐year and 10‐year returns, through Dec. 31, 2021, in each of our major fund categories -- Prime Institutional, Government Institutional, Treasury Institutional, Prime Retail, Government Retail, Treasury Retail and Tax‐Exempt."
It continues, "The Top-Performing Prime Institutional funds (and funds overall) were BlackRock Cash Inst MMF SL (BRC01) and JPMorgan Sec Lending MM Agency SL (VSLXX), which returned 0.09%. Excluding private and internal funds, the best performer in 2021 was DWS ESG Liquidity Inst (ESGXX) with a return of 0.08%. Among Prime Retail funds, JPMorgan Liquid Assets Capit (CJLXX) had the best return in 2021 (0.04%)."
MFI also includes the News brief, "ICI's Money Market Fund Assets." ICI's latest weekly 'Money Market Fund Assets' report shows assets falling the first week of the new year after rising for 8 weeks in a row. ICI shows money fund assets rising by $408 billion, or 9.5%, in 2021. (This follows a gain of $665.0 billion, or 18.3%, in 2020.) Crane Data's MFI XLS shows MMFs up $425.3 billion, or 9.0%, to $5.150 trillion in 2021."
Another News brief, "More Disclosures in SEC’s Proposed MMF Reforms," says, "Under 'Amendments to Form N-MFP,' the SEC explains, 'We are proposing amendments to improve our ability to monitor money market funds. The proposed amendments would provide certain new information about a fund's shareholders and disposition of non-maturing portfolio investments. We are also proposing changes to enhance the accuracy and consistency of information funds currently report [and to] to increase the frequency of certain data points."
Our January MFI XLS, with Dec. 31 data, shows total assets increased $104.6 billion to $5.150 trillion, after increasing $49.7 billion in November and $20.5 billion October. Assets decreased $878 million in September and increased $27.9 billion in August. Assets decreased $12.4 billion in July and $73.0 billion in June. 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 unchanged from previous month at 0.09%. Charged Expenses averaged 0.07% for the Crane MFA and the Crane 100. (We'll revise expenses Wednesday once we upload the SEC's Form N-MFP data for 12/31.) The average WAM (weighted average maturity) for the Crane MFA was 35 days (down two days from previous month) while the Crane 100 WAM dropped two days to 37 days). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
While we were holding out and hoping to have a live event, concerns over the virus spike have forced us to cancel our upcoming live Money Fund University and shift to a virtual event. Our 12th annual MFU "basic training" conference will still take place in two weeks, January 20-21, 2022, but it'll be during the afternoons only and no longer at the Boston Hyatt. Crane's Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics. The event also focuses on hot topics like money market fund regulations, money fund alternatives, offshore markets, and other recent industry trends. Registrations (now $250 instead of the $500 we charge for the live event) are still being taken, and the latest agenda is available here. (E-mail us to request the latest brochure.)
Money Fund University offers a 2-day crash course on money market mutual funds, educating attendees on the history of money funds, the Fed, interest rates, ratings, rankings, and money market instruments such as commercial paper, Treasury bills, CDs and repo. We also cover portfolio construction and credit analysis. Our educational conference features a faculty of the money fund industry's top lawyers, strategists, and portfolio managers.
New portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of "cash" investing should benefit from our comprehensive program. Even experienced professionals may enjoy a refresher course and the opportunity to interact with peers in an informal setting. Attendee registration for Crane's Money Fund University is just $250, and sponsorship opportunities are $2K (Bronze), $3K (Silver) and $5K (Gold).
We'd like to thank our current and past MFU sponsors -- BlackRock, Dreyfus CIS, J.P. Morgan Asset Management, Fitch Ratings, TD Securities, S&P Global Ratings, Dechert LLP, Fidelity Investments and Federated Hermes -- for their support, and we look forward to seeing you online in 2 weeks. E-mail Pete Crane (pete@cranedata.com) for the latest brochure or visit www.moneyfunduniversity.com to register or for more details.
Crane Data is also preparing for our next Bond Fund Symposium, which will be held March 28-29, 2022, at the Hyatt Regency in Newport Beach, Calif. Our Bond Fund Symposium offers a concentrated and affordable educational experience, as well as an excellent and informal networking venue. Registration for Bond Fund Symposium is $750; exhibit space is $2,000 (includes 2 tickets); and sponsorship opportunities are $3K, $4K, $5K, and $6K. Our mission is to deliver the best possible conference content at a reasonable price to bond fund professionals and investors.
We're also beginning to make plans for our next "big show," Money Fund Symposium, which will be held June 20-22, 2022, at the Hyatt Regency in Minneapolis. (Let us know if you'd like details on speaking or sponsoring.) Finally, mark your calendars for our next European Money Fund Symposium, which will be held Sept. 27-28, 2022, in Paris, France. Watch for more details on these shows in coming weeks and months. Note that the recordings and materials from our past events are available to Crane Data subscribers at the bottom of our "Content" page. Let us know if you'd like more info on any of our (or other "cash") events, and we hope to see you in Newport Beach in March, Minneapolis in June or Paris in September in 2022!
In other news, Wells Fargo Corporate & Investment Banking's Vanessa McMichael, who will present on "CDs, TDs & Bank Debt" at our upcoming Money Fund University, recently published a "2021: A year in review." She comments, "The Fed's Reverse Repo Facility (RRP) was a focal point in 2021 with new highs reached over and over. On the final day of 2021, the facility accepted $1.9 trillion with 103 counterparties.... Last year marked another explosive one for government MMF assets while prime MMFs experienced marginal outflows. The growth in government MMFs is reflective of the environment in which cash is abundant, while the decline in prime funds mid-2021 and beyond, seemed to be driven by the rate environment more than anything else. With prime fund yields hovering just above zero, the value for investment dwindled for some investors. Likewise, tax-exempt MMFs also shed assets this year which could be driven by similar factors."
The Wells Strategist also writes, "Front-end government supply declined in 2021; thus, the RRP was a critical instrument for government MMFs during this period of growth. According to Crane Data, the latest month-end MMF portfolio holdings indicate that 45% of total taxable MMF holdings are repo. During the same timeframe in 2019, repo made up about 30% of taxable MMF holdings."
She states, "Prime MMFs were blamed for short term market interference at the start of the pandemic. While prime funds did experience significant outflows in March 2020, the flight-to-quality was widespread and not entirely the fault of this one particular asset class. Nonetheless, in December 2020, the President's Working Group released a study of potential policy measures to address risks that prime funds and tax-exempt funds face in times of short-term market stress. The paper was debated amongst money market participants for most of 2021. On December 15th, 2021, the SEC released proposed changes to money market fund reform. The proposal was released with three members in favor and two dissenting. The changes are not yet final as there is a public comment period open for 60 days after the release."
McMichael says, "In summary, here are the reforms that are attempting to reduce the speed of excessive redemptions when market conditions shift: Increase minimum liquidity requirements; Remove the ability of money market funds to impose liquidity fees and redemption gates when they fall below certain liquidity thresholds; Require certain money market funds to implement swing pricing; and, Enhance certain reporting requirements."
Finally, she adds, "ESG became a larger conversation with money market investors given the growth in ESG and D&I MMFs. In the 2a-7 space, ESG/D&I funds operate like government or prime funds and purchase securities similar to other 2a-7 funds but transact with broker-dealers that are women-owned or black-owned, as examples. Similarly, these funds might allocate a portion of their management fee to an ESG/D&I cause or refuse to purchase individual securities from non-ESG friendly industries/issuers."
Law firm Stradley Ronon published a "Fund Alert" recently, entitled, "SEC Proposes Money Market Fund Reforms: Key Facts." It tells us, "At an open meeting on Dec. 15, 2021, the U.S. Securities and Exchange Commission (SEC), in a 3-2 vote, proposed amendments to Rule 2a-7 under the Investment Company Act of 1940 (1940 Act) that, if adopted, will impact the manner in which all money market funds operate. The key provisions of the proposed amendments would: Completely eliminate liquidity fee and redemption gate provisions in Rule 2a-7 for all money market funds; Require swing pricing for institutional prime and institutional tax-exempt money market funds; Increase daily and weekly liquid asset requirements to 25% and 50%, respectively (from 10% and 30%, respectively); Require board notification and filing on Form N-CR if a fund has less than 25% of total assets invested in weekly liquid assets or 12.5% of total assets invested in daily liquid assets; and, Prohibit certain mechanisms for maintaining a stable net asset value (NAV) per share in negative interest rate environments, such as by reducing the number of fund shares outstanding (including through reverse distribution mechanisms)." (Note: Stradley Ronon Partner Jamie Gershkow, will discuss "Money Fund Regulations: 2a-7 Basics & History" at our upcoming Money Fund University conference in Boston, January 20-21.)
Stradley Ronon writes, "Additionally, the SEC has proposed amendments to reporting requirements on Forms N-MFP and N-CR that, if adopted, will require increased SEC reporting to improve the availability of information about all money market funds. This alert summarizes the major features of the proposal. We will issue a series of alerts in the coming weeks to discuss in detail key aspects of the rulemaking package.... In addition, Stradley will host a webinar on Jan. 13, 2022 at 2:00 pm (Eastern time) on the proposal. Click here to register for the webcast.
Discussing the "Swing Pricing" proposal, they explain, "Under the proposed rule, an institutional prime or institutional tax-exempt money market fund must adjust its current NAV per share by a 'swing factor' if the fund has net redemptions for the pricing period. A swing factor is essentially a premium over NAV that an investor would be required to pay the fund to make it whole for the costs incurred in selling portfolio securities to meet the investor's redemption request during periods of net redemptions. The proposed swing pricing requirements would not apply to net subscriptions during a pricing period."
The piece continues, "The 'pricing period' is the period of time an order to purchase or sell securities issued by the fund must be received to otherwise be priced at a given current NAV under Rule 22c-1 (also known as the fund's cut off time). The definition is intended to permit money market funds that strike their NAV multiple times a day to continue to have multiple NAV strike times, but would require such funds to determine whether the fund has net redemptions for each pricing period during the day and apply swing pricing for each corresponding NAV calculation. Consistent with Rule 22c-1, net redemption activity would be determined based on all share classes in the aggregate rather than on a class-by-class basis."
It says, "Under the proposed rule, a swing pricing administrator would be responsible for determining the swing factor through good faith estimates, supported by data, of the costs the fund would incur if it sold a prorata amount of each security in its portfolio (a 'vertical slice' of its portfolio) to satisfy the amount of net redemptions for the pricing period. Determination of the swing factor, including the factors a swing pricing administer is required to consider, would differ depending upon whether net redemptions exceed a 'market impact threshold.' In determining whether a fund has net redemptions and the amount of net redemptions, the swing pricing administrator may make such determination based on receipt of sufficient investor flow information for the pricing period, which may consist of individual, aggregated, or netted orders, and may include reasonable estimates where necessary."
Stradley Ronon explains, "For institutional money market funds with net redemptions for the pricing period, the good faith estimates used in determining the swing factor would include, for each security, spread costs (such that the fund is valuing each security at its bid price) and transaction costs. Under specific circumstances, the swing factor would increase. Specifically, if the institutional money market fund has net redemptions for a pricing period that exceed a 'market impact threshold,' the good faith estimates used in determining the swing factor would also include market impacts. The 'market impact threshold' is defined as 4% of the fund's NAV divided by the number of pricing periods the fund has in a business day, or such smaller amount of net redemptions as the swing pricing administrator determines."
They add, "The swing pricing administrator would estimate market impacts for each security in the fund's portfolio by first establishing a market impact factor for each security (or each type of security with the same or substantially similar characteristics). The market impact factor would be an estimate of the percentage decline in the value of the security if it were sold, per dollar of the amount of the security that would be sold, under current market conditions. Next, the market impact factor would be multiplied by the dollar amount of the security that would be sold if a pro-rata amount of each security in the fund's portfolio were sold to meet the net redemptions for the pricing period."
The Alert also says, "The proposed rule includes specific responsibilities for the board related to swing pricing, including the independent trustees. Specifically, the board, including a majority of independent trustees, would be required to (i) approve the fund's swing pricing policies and procedures, (ii) designate the swing pricing administrator; and (iii) review, no less frequently than annually, a written report prepared by the swing pricing administrator. The proposal generally contemplates a board role in oversight, rather than board involvement in the day-to-day administration of swing pricing. The swing pricing proposal also includes related amendments to registration statement disclosure, Form N-MFP reporting, and website disclosure."
It continues, "The intent of swing pricing is to effectively pass transaction costs stemming from shareholder redemptions to the redeeming shareholders in order to reduce the potential for the dilution in the value of the remaining shareholders' shares. It is expected to reduce first-mover advantage and help prevent a run on a fund. As explained below, the SEC is proposing to remove liquidity fees from Rule 2a-7, but the SEC believes it is important for institutional prime and institutional tax-exempt money market funds to have an effective tool to address shareholder dilution and potential institutional investor incentives to redeem quickly in times of liquidity stress to avoid further losses. A mandatory swing pricing regime for net redemptions is also intended to address any reluctance of imposing a voluntary swing pricing regime or voluntary liquidity fee. Swing pricing was included in the proposed rule despite a general lack of industry support in the comments submitted on the PWG Report."
Discussing "Form N-CR and Form N-MFP Reporting," the article comments, "Form N-CR is a publicly available form used by money market funds to report certain material events to the SEC. Proposed changes to Form N-CR would require money market funds to report when a fund has invested less than 25% of its total assets in weekly liquid assets or less than 12.5% of its total assets in daily liquid assets.... Form N-MFP is a publicly available form used by money market funds to report their portfolio holdings and certain other information to the SEC each month. Proposed changes to Form N-MFP would require new information to be reported, including (i) disclosure of the name and percentage ownership of each person who owns of record or is known by the fund to own beneficially 5% or more of the class of shares; (ii) for money market funds that are not government or retail money market funds, identification of the percentage of investors in specified categories.... Proposed changes to Form N-MFP also include changes to standardize how filers report certain information, require additional information about repurchase agreement transactions, and include more frequent data points for information reported in Form N-MFP."
Finally, they write, "The SEC proposes the following compliance periods following the effective date of any amendments: 12-month compliance period for (i) swing pricing requirements, including disclosures related to swing pricing on Forms N-MFP and N-1A; and (ii) the requirement that financial intermediaries have the capacity to redeem and sell at a price based on the current NAV per share or be prohibited from purchasing securities issued by the fund in nominee name on behalf of other persons; Six-month compliance period for all other provisions of the proposal; Removal of the liquidity fee and redemption gate provisions, including related disclosure requirements in Form N-1A and N-CR, would be effective when a final rule is effective. Comments on the proposal are due 60 days from publication in the Federal Register. As of the date of this alert, the proposal had not yet been published in the Federal Register."
A year ago, we wrote "Rolling w/Reform Changes III: Recap of '20 Prime Exits, News & Moves" (1/7/21), which explained, "In January 2016, money market mutual funds were in the midst of a series of dramatic changes ahead of October 2016's Money Fund Reforms, the biggest changes to money fund regulations since their introduction in October 1970. Five years ago, we ran the story, "Rolling w/Reform Changes II: Recap of '15 Announcements, '16 Plans," which reviewed a number of major changes among the largest managers that took place during 2015. As in the past year, exits from Prime MMFs and fund repositioning were notable trends." Today, we review the changes over the past year, as money funds prepare for yet another round of regulatory changes and fund lineup shifts in the New Year. (See also our "Dec. 10, 2021 News, "Top 10 Stories of 2021: More Regulations; Zero Yields; ESG; Changes. Note: Readers may also review "Crane Data's News," "Link of the Day" and "Money Fund Intelligence Archives" for more stories from the past year, 5 years and decade-plus.)
While we haven't seen as many lineup shifts and big exits from Prime as in 2015-6 or in 2020, we continued to see a steady stream of minor liquidations and lineup changes in 2021. In February, we wrote "SunAmerica Liquidating AIG Govt MMF; ICI, Weekly Portfolio Holdings" (2/18/21), and on March 5 we wrote, "March MFI: Liquidations, Changes; Ameriprise's Chris Melin; Deposits." Our March MFI's lead article said, "While the money market fund industry remains surprisingly robust given the myriad challenges it faces, small-scale liquidations and changes continue to gradually remake the space and increase concentration. Over the past month, a number of funds announced or completed liquidations, Wells Fargo announced the sale of its asset management unit, and Dreyfus took additional steps to streamline its fund lineup. In February, Crane Data removed 22 funds from MFI, including over a dozen State Municipal funds. Below, we review the latest batch of changes." (See our May 20, 2020 News, "Northern Liquidating Prime Obligs," and our June 22, 2020 News, "Fidelity to Liquidate Prime Instit Money Funds; Cites Investor Behavior.")
Later in the year, we wrote "Delaware Ivy Cash Funds Liquidating; Treasury Today on OMFIF Webinar" on 10/4/21), and we wrote "Nov. MFI: BMO Latest Exit; IMMFA's Iommi at EMFS; FSB's Final Report" on 11/5/21. The latter stated, "While there haven't been a ton, we continue to see mergers, liquidations and changes in the money fund space. The most recent involves the BMO Funds, which announced a deal to merge their money funds into Goldman Sachs' MMFs. Their SEC filing tells us, 'On Oct. 18, 2021, the Board of Directors of BMO Funds ... approved an agreement ... providing for the reorganization of each of the BMO Government Money Market Fund, BMO Prime MMF and BMO Tax-Free MMF ... into a corresponding series of Goldman Sachs Trust. BMO Asset Management Corp., investment adviser to each of the BMO Money Market Funds, recommended that the Board approve the Reorganizations in connection with its decision to exit the mutual fund investment advisory business in the United States, including ceasing management of each BMO Money Market Fund."
We also wrote about asset manager moves and changes in the updates, "BNY Mellon Streamlines Asset Management; Wells PMs on Rate Squeeze" ( 2/11/21) and "Wells Fargo Asset Mgmt. To Be Renamed Allspring Global Investments" (7/27/21). The latter quotes a press release, "GTCR LLC and Reverence Capital Partners, L.P. ... announced that upon closing of their acquisition of Wells Fargo Asset Management (WFAM), the newly independent company will be rebranded as Allspring Global Investments. The new name Allspring Global Investments reflects the newly independent firm's rich history in investment leadership and its commitment to renewal, growth, and meaningful client outcomes. As part of the transition, veteran industry executive Joseph A. Sullivan will become Chief Executive Officer, in addition to his previously announced role as Executive Chairman. Mr. Sullivan will succeed Nico Marais, WFAM's current CEO, who will retire upon closing of the transaction and continue to serve Allspring as a senior advisor."
In addition to the sporadic exits and shifts, we saw continued new fund launches in the ESG and Social space. Early in the year, we ran the piece, "JP Morgan Launches 'Empower' Share Class to Support Minority Banks" (2/24/21). Then in May, we published, "MS CastleOak D&I Share Classes Launch; SSGA's Goldthwait Talks ESG" (5/6/21). The former updated commented, "J.P. Morgan Asset Management unveiled another offering in the 'ESG and Social' money fund space, launching new 'Empower' share classes to support minority banks and institutions. A press release entitled, 'JPMorgan Chase Announces Initiatives to Support Minority-Owned and Diverse-Led Financial Institutions,' tells us, 'JPMorgan Chase today announced initiatives to further support Minority Depository Institutions (MDIs) and diverse-led Community Development Financial Institutions (CDFIs), as part of the firm's recently announced $30 billion commitment to advancing racial equity."
In the second half of the year, we posted more ESG stories: "BlackRock Expands ESG Lineup; Files for New Bancroft, Cabrera Shares" (8/19/21); "More D&I: State Street Files for Blaylock Van Shares; WSJ Hits Tether" (10/27/21); and, "SSGA Debuts Opportunity Class; BlackRock Bancroft, Cabrera Shares Live" (11/17/21). The latter News told us, "Money market fund managers continue to launch 'D&I' share classes, the latest trend in the ESG money fund space, according to a recent trio of announcements. The most recent moves comes from SSGA, which announced new 'Opportunity' share classes, and BlackRock, which went live with its new Bancroft and Cabrera classes."
Of course, waiting for new regulations was also a major theme and driver of change in 2021. On the European front (where we're still waiting for a proposal), we wrote: "ESMA Posts Consultation Report on Potential Reform of European MMFs" (3/30/21) and "IMMFA's Veronica Iommi Talks Regulations at European MF Symposium" (10/25/21). Our October update quoted IMMFA's Veronica Iommi, "`In Europe, our focus over the next few years will be the review of EU Money Market Fund regulation.... In anticipation, ESMA launched on the 26th of March, its consultation on potential reforms of the regulation. The aim of the consultation being to review the overall regime, including the roles played by markets and investors, take account of lessons learned following market stress experience during March last year. So, what are the current options on the table at the EU level and how do they marry with those contained in the FSB's final report and those being considered in other key jurisdictions? [S]everal of the potential reform options proposed by ESMA are similar to those of the U.S. President's Working Group Report issued in February and the FSB's recent final report."
Our Sept. 29, 2021 News, "Callahan, Cunningham Money Fund Symposium Keynote Talks ESG, Regs" discussed both pending regulatory changes and ESG. BlackRock's Callahan commented on regulatory changes, "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."
Finally, discussing the surprising news at the end of the year, our "SEC Proposes MMF Reforms: More Liquidity, No Gates/Fees, Swing Pricing" (12/16/21) explained, "The Securities & Exchange Commission proposed Money Market Fund Reforms Wednesday, which include higher liquidity levels, the removal of the emergency gates and fees regime, a new swing pricing mandate for Prime Inst MMFs and additional disclosure requirements." (See their "Fact Sheet" and the full Proposal here.)
The press release, "SEC Proposes Amendments to Money Market Fund Rules," tells us, "The Securities and Exchange Commission today voted to propose amendments to certain rules that govern money market funds under the Investment Company Act of 1940. In March 2020, growing economic concerns about the impact of the COVID-19 pandemic led investors to reallocate their assets into cash and short-term government securities. Prime and tax-exempt money market funds, particularly institutional funds, experienced large outflows, which contributed to stress on short-term funding markets. The Commission's proposed amendments are designed, in part, to address concerns about prime and tax-exempt money market funds highlighted by these events."
The Investment Company Institute released its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for November 2021 Thursday. ICI's monthly "Trends" report shows that money fund assets increased $65.5 billion in November to $4.619 trillion. This follows increases of $11.1 billion in October, $6.4 billion in September and $25.5 in August. MMFs decreased $24.4 billion in July and $73.4 billion in June, but increased $78.6 billion in May, $31.9 billion in April, $129.4 billion in March and $39.4 billion in February. Assets decreased $5.2 billion in January and $10.0 billion last December. For the 12 months through Nov. 30, 2021, money fund assets have increased by $275.9 billion, or 6.4%. (Month-to-date in December through 12/29, MMF assets have increased by $65.3 billion to $5.106 trillion according to Crane's MFI Daily, which tracks a broader universe of funds.) (Note too: We're still planning on hosting our annual Money Fund University "basic training" conference live and in person January 20-21, 2022, at the Boston Hyatt Regency. We hope to see those of you brave enough to travel and gather, and subscribers are welcome to stop by for a session or cocktails. Thanks to all for your support in 2021, and Happy New Year!)
Their monthly release states, "The combined assets of the nation's mutual funds decreased by $358.59 billion, or 1.3 percent, to $26.39 trillion in November, 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 $16.59 billion in November, compared with an inflow of $13.81 billion in October.... Money market funds had an inflow of $65.38 billion in November, compared with an inflow of $10.97 billion in October. In November funds offered primarily to institutions had an inflow of $63.47 billion and funds offered primarily to individuals had an inflow of $1.91 billion."
The Institute's latest statistics show that Taxable funds saw gains while Tax Exempt MMFs saw losses yet again last month. Taxable MMFs increased by $66.3 billion in November to $4.532 trillion. Tax-Exempt MMFs decreased $0.8 billion to $86.9 billion. Taxable MMF assets increased year-over-year by $297.3 billion (7.0%), while Tax-Exempt funds fell by $21.3 billion over the past year (-19.7%). Bond fund assets increased by $22.3 billion in November to a $5.630 trillion; they've risen by $507.8 billion (9.9%) over the past year.
Money funds represent 17.5% of all mutual fund assets (up 0.5% from the previous month), while bond funds account for 21.3%, according to ICI. The total number of money market funds was 307, the same number as the prior month and down from 345 a year ago. Taxable money funds numbered 247 funds, and tax-exempt money funds numbered 60 funds.
ICI's "Month-End Portfolio Holdings" confirms a huge jump in Repo and drop in Treasuries last month. Repurchase Agreements expanded their lead as the largest composition segment in November, rising $136.3 billion, or 6.9%, to $2.115 trillion, or 46.7% of holdings. Repo holdings have increased $1.095 trillion, or 107.3%, over the past year. (See our Dec. 10 News, "Dec. MF Portfolio Holdings: Repo Jumps, Led by FICC; Treasuries Drop.")
Treasury holdings in Taxable money funds fell but remained the second largest composition segment. Treasury holdings declined $33.3 billion, or -1.9%, to $1.697 trillion, or 37.4% of holdings. Treasury securities have decreased by $524.7 trillion, or -23.6%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they decreased $11.2 billion, or -2.7%, to $402.4 billion, or 8.9% of holdings. Agency holdings have fallen by $244.1 billion, or -37.8%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they decreased by $4.3 billion, or -2.3%, to $181.2 billion (4.0% of assets). CDs held by money funds shrank by $2.1 billion, or -1.2%, over 12 months. Commercial Paper took fifth place, down $5.0 billion, or -3.2%, to $148.3 billion (3.3% of assets). CP has decreased by $14.2 billion, or -8.8%, over one year. Other holdings increased to $25.5 billion (0.6% of assets), while Notes (including Corporate and Bank) were down to $3.0 billion (0.1% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 47.341 million, while the Number of Funds was flat at 247. Over the past 12 months, the number of accounts rose by 7.022 million and the number of funds decreased by 23. The Average Maturity of Portfolios was 37 days, the same number as October. Over the past 12 months, WAMs of Taxable money have decreased by 8.
