​

Federated Hermes released its Q3'​22 earnings and hosted its quarterly earnings call late last week, which discussed the end of money fund fee waivers, increases in retail money fund assets, pending money fund regulations and more. The press release, entitled, "Federated Hermes, Inc. reports third quarter 2022 earnings," says, "Money market assets were $​441.​3 billion at Sept. 30, 2022, up $​27.​6 billion or 7% from $​413.​7 billion at Sept. 30, 2021 and up $​1.​6 billion or less than 1% from $​439.​7 billion at June 30, 2022. Money market fund assets were $​309.​9 billion at Sept. 30, 2022, up $​17.​6 billion or 6% from $​292.​3 billion at Sept. 30, 2021 and up $​11.​9 billion or 4% from $​298.​0 billion at June 30, 2022."

It continues, "Revenue increased $​54.​6 million or 17% primarily due to a decrease in voluntary fee waivers related to certain money market funds in order for those funds to maintain positive or zero net yields (​voluntary yield-​related fee waivers).... This increase was partially offset by a decrease in revenue due to lower average long-​term assets. During Q3 2022, Federated Hermes derived 54% of its revenue from long-​term assets (​33% from equity, 13% from fixed income and 8% from alternative/​private markets and multi-​asset), 45% from money market assets, and 1% from sources other than managed assets. Operating expenses increased $​56.​2 million or 25% due to increased distribution expenses resulting primarily from lower voluntary yield-​related fee waivers, partially offset by a decrease due to lower average managed fund assets."

Federated explains, "There were no material voluntary yield-​related fee waivers during the quarter ended Sept. 30, 2022. During the nine months ended Sept. 30, 2022, voluntary yield-​related fee waivers totaled $​85.​3 million. These fee waivers were partially offset by related reductions in distribution expenses of $​66.​5 million, such that the net negative pre-​tax impact to Federated Hermes was $​18.​8 million for the nine months ended Sept. 30, 2022. During the three and nine months ended Sept. 30, 2021, voluntary yield-​related fee waivers totaled $​109.​2 million and $​310.​2 million, respectively. These fee waivers were partially offset by related reductions in distribution expenses of $​72.​3 million and $​204.​9 million, respectively, such that the net negative pre-​tax impact to Federated Hermes was $​36.​9 million and $​105.​3 million for the three and nine months ended Sept. 30, 2021, respectively."

The release adds, "Due to increases in the yields of securities held by money market portfolios, the net negative pre-​tax impact of the voluntary yield-​related fee waivers has been eliminated. The amount of voluntary yield-​related fee waivers can vary based on a number of factors, including, among others, interest rates, yields, asset levels, asset flows and the ability of distributors to share in waivers. Any change in these factors can impact the amount and level of voluntary yield-​related fee waivers, including in a material way."

During the earnings call, CEO Chris Donahue comments, "​While Q3 presented challenging market conditions across asset classes, our business mix enabled Federated Hermes to achieve positive net sales in equities, fixed income, private markets and long-​term assets overall. We also produced increases in revenue, operating and net income compared to the prior quarter as growth in money market revenue offset lower revenues from market-​based decreases in long-​term assets."

Discussing money markets, he says, "​Assets increased in the third quarter compared to the second quarter. Money market fund assets increased about $​12 billion, benefiting from higher yields and continued elevated liquidity levels in the financial system. Money funds also benefited from higher yields relative to deposit alternatives. We continue to believe that higher short-​term rates will benefit money market funds over time, particularly as compared to deposit rates. Money market separate accounts were down by $​10 billion mainly from seasonal factors related to timing of tax payments. Our money market mutual fund market share including sub-​advised funds was about 7.​4% at the end of the third quarter, up from about 7.​3% at the end of the second quarter."

CFO Tom Donahue tells us, "On the financials, total revenue for Q3 increased $​15 million or 4% from the prior quarter, due mainly to lower money market fund minimum yield related waivers of $​9.​5 million, higher average money market assets, increasing revenues by $​6.​6 million, lower money market competitive waivers, an additional day in the quarter and higher carried interest and performance fees. These were all partially offset by lower average long-​term assets which reduced revenue by $​12.​8 million.... Q3 operating expense increased $​10.​7 million or 4% compared to Q2, driven by $​9 million of higher distribution expense from lower money market fund minimum yield-​related waivers."

During the Q&​A, Federated was asked about "anemic money fund flows." Donahue answers, "​Next week, the Fed'​s going to do 75. What are they going to do in December? What we'​ve always said on several of these calls is that over time, this helps the money fund business. We often go back to the story of '​16 to '​18 when the Fed was increasing rates where our assets then increased about 15% and the industry about 11%. Then in the next period, once you'​re dealing with higher rates. Our assets went up another 22% and the industry increased about 14%. So those 2 levels, we think, we'​ll obtain. When? I don'​t know. I'​m going to let Debbie comment on other dynamics and let her take a guess about fourth quarter avalanches.

CIO Debbie Cunningham says, "​Looking at historic cycles, there'​s generally about a 6-​month lag to when policy changes start to occur.... The Fed began moving in March, so we'​re at about ... that 6-​month lag. Our expectation would be that we start to see a little bit more of a pickup going forward. Number two, we were moving off of zero [​rates].... That'​s not the norm. So I think cycles coming off of zero react a little bit differently. Thirdly, if you look at where there has been a huge amount of growth since March within the industry, and this was referenced several different times in media articles over the course of last week, it'​s been in retail prime."

Asked about money funds' fee mix, President Ray Hanley answers, "Just from a fee standpoint, the retail-​oriented funds will tend to have both higher revenue and higher related distribution expenses. But if you consider it on a net revenue basis, it would be fairly comparable to institutional. So we should not see a meaningful change there in our blended, if you will, fee rate.... On the sweep front, it'​s hard to identify what a lot of our clients do with us on an omnibus basis, so we don'​t always have visibility into the end use. I would peg it at somewhere in the neighborhood of 10% to 15% of our money fund AUM [​sweeps]. But again, it'​s difficult to get a precise figure at that."

Cunningham comments, "​The other thing I'​d add ... is that the sweep clients changed completely into the government products after the last set of reforms because of the institutional prime floating NAV.... So it'​s essentially a government product phenomenon now. As far as institutional growth goes ... the expectation is that when you are nearing a peak or getting to a point where you think there'​s a terminal rate in sight from a Fed funds target standpoint, that'​s when institutions really begin to move in earnest."

She adds, "Quite honestly, a steady to declining rate environment is really what produces inflows into institutional money market funds on an outsized basis, as long as you'​re not declining into a zero rate environment again. So I think we'​re far away from ... either one of those things happening.... [​But] I think institutional growth is beginning to happen. It will continue to happen but it will increase in earnest more than likely in 2023 versus '​22."

Finally, when asked about regulatory changes and swing pricing, Donahue says, "It would be about $​8 billion [​in Prime Inst MMFs].... Various things occurred at the SEC ... that put the actual implementation of the rule off at least a quarter. Now we don'​t know when they'​re going to come up with it. We thought it would be already. But because of some glitches in their systems on the comment situation, they had to extend.... Another thing which we mentioned ... is the GAO is doing a little study on money funds to see what impact has been had and that was requested by certain Congress representatives in Congress. I don'​t know what that'​s going to report but that'​s supposedly coming out here in the fourth quarter and perhaps that will help inform."

He continues, "We are, needless to say, using this additional comment period to point out ... that really swing pricing on money funds is a great disease to impose on the money funds and there'​s no basis data or history for doing that.... Now of course, the SEC announced they'​re going to do put out something on swing pricing on bond funds. That has been done in Europe. I don'​t know what they'​re going to propose or what the deal will be on that. That'​s another whole round. But it just makes no sense on the money funds at all. We'​ve also been talking to them about what happens when ... you get to negative rates."

Finally, Donahue adds, "We'​ve had very recent discussions with them on reverse distribution mechanism ... to enable funds to deal with it long term. If you do get negative rates which nobody foresees and it'​s hard for us to figure out why you would injure current funds that are functioning well by that concept when you have plenty of time to study it. So we don'​t know when the regs are coming out. We know it'​s been delayed. And we know there'​s been a lot of commentary much like ours [​from] the industry and many others against doing what they'​re proposing. But we'​ll see."

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The Investment Company Institute released its latest weekly "Money Market Fund Assets" report, as well as its monthly "Trends in Mutual Fund Investing" and "Month-​End Portfolio Holdings of Taxable Money Funds" for September 2022 Thursday. The weekly update shows money fund assets flat in the latest week and mostly flat in September. ICI shows assets down by $​121 billion, or -​2.​6%, year-​to-​date, with Institutional MMFs down $​228 billion, or -​7.​0% and Retail MMFs up $​107 billion, or 7.​3%. Over the past 52 weeks, money fund assets are up by $​25 billion, or 0.​6%, with Retail MMFs rising by $​142 billion (​9.​9%) and Inst MMFs falling by $​116 billion (-​3.​7%). (​For the month of October through 10/​26, MMF assets decreased by $​4.​8 billion to $​5.​031 trillion according to Crane'​s MFI XLS, which tracks a broader universe of funds than ICI. Crane Data'​s Prime asset totals increased $​23.​0 billion in October to $​992.​3 billion.)

The weekly release says, "Total money market fund assets decreased by $​371 million to $​4.​58 trillion for the week ended Wednesday, October 26, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $​8.​46 billion and prime funds increased by $​5.​75 billion. Tax-​exempt money market funds increased by $​2.​34 billion." ICI'​s stats show Institutional MMFs decreasing $​5.​9 billion and Retail MMFs increasing $​5.​5 billion in the latest week. Total Government MMF assets, including Treasury funds, were $​3.​909 trillion (​85.​3% of all money funds), while Total Prime MMFs were $​565.​5 billion (​12.​3%). Tax Exempt MMFs totaled $​109.​8 billion (​2.​4%).

ICI explains, "Assets of retail money market funds increased by $​5.​51 billion to $​1.​58 trillion. Among retail funds, government money market fund assets decreased by $​1.​74 billion to $​1.​14 trillion, prime money market fund assets increased by $​5.​33 billion to $​336.​79 billion, and tax-​exempt fund assets increased by $​1.​92 billion to $​98.​16 billion." Retail assets account for a over a third of total assets, or 34.​4%, and Government Retail assets make up 72.​4% of all Retail MMFs.

They add, "Assets of institutional money market funds decreased by $​5.​88 billion to $​3.​01 trillion. Among institutional funds, government money market fund assets decreased by $​6.​72 billion to $​2.​77 trillion, prime money market fund assets increased by $​417 million to $​228.​71 billion, and tax-​exempt fund assets increased by $​419 million to $​11.​61 billion." Institutional assets accounted for 65.​6% of all MMF assets, with Government Institutional assets making up 92.​0% 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 over $​400 billion lower than Crane'​s asset series.)

ICI'​s "Trends" report shows that money fund assets increased $​4.​2 billion in September to $​4.​572 trillion. This follows a decrease of $​6.​4 billion in August, increases of $​34.​3 billion in July and $​25.​0 billion in June, and decreases of $​8.​0 billion in May and $​71.​0 billion in April. MMFs increased $​9.​6 billion in March, decreased $​38.​3 billion in February, and decreased $​136.​1 billion in January. For the 12 months through Sept. 30, 2022, money fund assets increased by $​29.​8 billion, or 0.​1%.

The monthly release states, "The combined assets of the nation'​s mutual funds decreased by $​1.​45 trillion, or 6.​4%, to $​21.​20 trillion in September, 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 $​56.​54 billion in September, compared with an outflow of $​7.​54 billion in August.... Money market funds had an outflow of $​299 million in September, compared with an outflow of $​10.​32 billion in August. In September funds offered primarily to institutions had an outflow of $​32.​56 billion and funds offered primarily to individuals had an inflow of $​32.​26 billion."

The Institute'​s latest statistics show that Taxable funds and Tax Exempt MMFs were mixed last month. Taxable MMFs increased by $​6.​8 billion in September to $​4.​473 trillion. Tax-​Exempt MMFs decreased $​2.​6 billion to $​99.​6 billion. Taxable MMF assets increased year-​over-​year by $​19.​0 billion (​0.​4%), and Tax-​Exempt funds rose by $​10.​8 billion over the past year (​12.​2%). Bond fund assets plunged by $​238.​5 billion (-​5.​0%) in September to $​4.​533 trillion, and they'​ve decreased by $​1.​067 trillion (-​19.​1%) over the past year.

Money funds represent 21.​6% of all mutual fund assets (​up 1.​5% from the previous month), while bond funds account for 21.​4%, according to ICI. The total number of money market funds was 292, down four from the prior month and down from 307 a year ago. Taxable money funds numbered 237 funds, and tax-​exempt money funds numbered 55 funds.

ICI'​s "Month-​End Portfolio Holdings" confirm yet another jump in Repo and plunge in Treasuries last month. Repurchase Agreements remained the largest composition segment in September, increasing $​146.​5 billion, or 6.​2%, to $​2.​496 trillion, or 55.​8% of holdings. Repo holdings have increased $​440.​1 billion, or 21.​4%, over the past year. (​See our Oct. 13 News, "Oct. MF Portfolio Holdings: Repo, Agencies Higher; T-​Bills Fall Again.")

Treasury holdings in Taxable money funds fell again, but they remained the second largest composition segment. Treasury holdings plunged $​135.​6 billion, or -​10.​1%, to $​1.​204 trillion, or 26.​9% of holdings. Treasury securities have decreased by $​387.​0 billion, or -​24.​3%, over the past 12 months. U.​S. Government Agency securities were the third largest segment; they increased $​15.​6 billion, or 3.​8%, to $​427.​0 billion, or 9.​5% of holdings. Agency holdings have fallen by $​20.​5 billion, or -​4.​6%, over the past 12 months.

Certificates of Deposit (​CDs) remained in fourth place, though they declined by $​11.​2 billion, or -​6.​0%, to $​176.​9 billion (​4.​0% of assets). CDs held by money funds rose by $​24.​6 billion, or 16.​2%, over 12 months. Commercial Paper remained in fifth place, up $​147 million, or 0.​1%, to $​146.​8 billion (​3.​3% of assets). CP decreased $​2.​8 billion, or -​1.​9%, over one year. Other holdings increased to $​17.​3 billion (​0.​4% of assets), while Notes (​including Corporate and Bank) inched up to $​4.​0 billion (​0.​1% of assets).

The Number of Accounts Outstanding in ICI'​s series for taxable money funds increased to 58.​994 million, while the Number of Funds remained the same this month at 237. Over the past 12 months, the number of accounts rose by 12.​778 million and the number of funds decreased by 10. The Average Maturity of Portfolios was a record low 18 days, down s days from August. Over the past 12 months, WAMs of Taxable money have decreased by 16.

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A press release entitled, "Morgan Stanley Investment Management Partners with Opportunity Finance Network on the Newly Launched Impact Class of Money Market Fund Shares," tells us, "Morgan Stanley Investment Management (​MSIM) announced ... it has selected Opportunity Finance Network (​OFN) as its diversity and inclusion partner for MSIM'​s charitable contribution related to the newly launched Impact Class. OFN is a leading national network of 370 community development finance institutions (​CDFIs) that works to ensure communities underserved by mainstream finance have access to affordable, responsible financial products and services." (​For more on ESG and Social MMFs, see our Sept. 19 News, "SSGA to Liquidate State Street ESG Liquid Reserves," our May 12 News (​with hotlinks at the end), "UBS AM Explains Sustainability in Liquidity; Federated Adds SGD Shares," and watch for ESG MMF comments from this week'​s AFP conference in Philadelphia in coming days.)

It continues, "The Impact Classes are share classes available in two of MSIM'​s institutional money market funds. They contain a contribution feature in which MSIM, out of its own profits from managing the Impact Classes, provides support to organizations that focus on affordable housing, children'​s health and nutrition and education among other diversity, equity and inclusion (​DE&​I) initiatives. Under this new partnership, MSIM will make an annual contribution to OFN'​s Finance Justice Fund, an OFN initiative that aims to bring $​1 billion in capital from corporate and philanthropic partners to historically underinvested communities."

Navindu Katugampola, MSIM'​s Head of Sustainable Investing, comments, "MSIM chose OFN as a partner because it is uniquely positioned to help money flow to people and places where traditional financing doesn'​t reach."

Opportunity Finance Network'​s Beth Lipson states, "We are deeply grateful for Morgan Stanley Investment Management'​s support of our Finance Justice Fund.... Its contributions will help us achieve the goal of the Finance Justice Fund, which is to close the racial wealth gap and accelerate the work of our member CDFIs investing in affordable housing, health centers, schools, and other anchors of the vibrant communities where we all wish to live."

MSIM also says, "The Impact Classes are available to direct institutional investors in Morgan Stanley Institutional Liquidity Funds Government (​IMPXX) and Prime (​IMPTXX) portfolios. They are designed to help institutional liquidity investors achieve their primary investment objectives of principal stability, liquidity, and income while at the same time advancing their DE&​I goals. MSIM will contribute at least 0.​02% of the net annualized assets under management in the Impact Class shares to support DE&​I initiatives."

They tell us, "The Impact Classes represent the latest in the series of innovative share classes and product structures across the Morgan Stanley Institutional Liquidity Funds money market fund lineup that are designed to assist DE&​I and environmental, social and governance (​ESG) conscious liquidity investors. Investors interested in the Impact Class may also be interested in the CastleOak Shares which were launched last year in partnership with CastleOak Securities, L.​P., a leading minority-​owned boutique investment bank, whose giving back philanthropy focuses on community, professional development and education."

Finally, the release adds, "Opportunity Finance Network (​OFN) is a leading national network of more than 370 community development financial institutions (​CDFIs), specialized lenders that provide affordable, responsible financial products and services in low-​income rural, urban, and Native communities nationwide. As a trusted intermediary between CDFIs and the public and private sectors, OFN works with its partners -- banks, philanthropies, corporations, government agencies and others -- to create economic opportunity for all by strengthening and investing in CDFIs."

Crane Data currently tracks 38 Social, ESG, Minority or Veteran-​affiliated MMFs with $​77.​3 billion (​as of 9/​30/​22), representing 1.​5% of the total $​5.​031 trillion in MMFs. (​The Social & ESG MMF total is down from $​87.​8 billion as of 12/​31/​21.) Social or "​Impact" MMFs (​all Govt MMFs) total $​27.​7 billion and include: BlackRock Liq FedTust Inst (​TFFXX, $​5.​7B), Dreyfus Govt Sec Cash Instit (​DIPXX, $​3.​3B), Federated Hermes Govt Ob Tax-​M IS (​GOTXX, $​6.​6B), Goldman Sachs FS Fed Instr Inst (​FIRXX, $​3.​0B) and Morgan Stanley Inst Liq Govt Sec Inst (​MUIXX, $​9.​1B). ESG MMFs (​All Prime) total $​10.​1B and include: BlackRock LEAF Direct (​LEDXX, $​1.​2B), BlackRock Wealth LEAF Inv (​PINXX, $​1.​3B), DWS ESG Liquidity Inst (​ESGXX, $​533M), Morgan Stanley Inst Liq ESG MMP I (​MPUXX, $​3.​7B), State Street ESG Liq Res Prem (​ELRXX, $​712M) and UBS Select ESG Prime Inst Fund (​SGIXX, $​2.​6B).

Social and Veteran-​Affiliated MMF Share Classes (​Prime and Govt) total $​39.​6B and include: BlackRock Lq FedFund Mischler (​HUAXX, $​1.​2B), Dreyfus Govt Cash Mgmt BOLD (​DBLXX, $​2.​3B), Federated Hermes Govt Obligs SDG (​GPHXX, $​647M), Goldman Sachs FS Govt Drexel Hamilton (​VETXX, $​6.​2B), Goldman Sachs FS Prm Ob Drexel Hamilton (​VTNXX, $​50M), Invesco Govt & Agency Cavu (​CVGXX, $​6.​2B), Invesco Liquid Assets Cavu (​CVPXX, $​1M), Invesco Treasury Cavu (​CVTXX, $​444M), JPMorgan 100% US Trs MM Academy (​JACXX, $​261M), JPMorgan 100% US Trs MM Empower (​EJTXX, $​22M), JPMorgan Prime MM Academy (​JPAXX, $​577M), JPMorgan Prime MM Empower (​EJPXX, $​406M), JPMorgan US Govt MM Academy (​JGAXX, $​8.​9B), JPMorgan US Govt MM Empower (​EJGXX, $​5.​9B), JPMorgan US Trs Plus MM Academy (​JPCXX, $​176M), JPMorgan US Trs Plus MM Empower (​EJUXX, $​104M), Morgan Stanley Inst Liq ESG MMP CastleOak (​OAKXX, $​251M), Morgan Stanley Inst Liq Govt CastleOak (​COSXX, $​361M), Morgan Stanley Inst Liq Govt Impact (​IMPXX, $​581M), Northern Instit Govt Select SWS (​WCGXX, $​2.​0B), State Street Inst Treasury Plus Opp (​OPTXX, $​34M), State Street Inst US Govt Bancroft (​VTGXX, $​400M), State Street Inst US Govt Blaylock (​BUYXX, $​151M) and State Street Inst US Govt Opp (​OPGXX, $​2.​4B).

For more on ESG and "​Social" MMFs, see these Crane Data News pieces: "Dreyfus Announces New BOLD D&​I Share Class with Howard University" (​3/​1/​22), "SSGA Debuts Opportunity Class; BlackRock Bancroft, Cabrera Shares Live" (​11/​17/​21); "More D&​I: State Street Files for Blaylock Van Shares; WSJ Hits Tether" (​10/​27/​21); "BlackRock Expands ESG Lineup; Files for New Bancroft, Cabrera Shares" (​8/​19/​21); "Northern Renames Diversity Shares Siebert Williams; Safened Platform" (​4/​20/​21); "Morgan Stanley Files for CastleOak Shares; Bond Fund Symposium Today" (​3/​25/​21); "JP Morgan Launches '​Empower' Share Class to Support Minority Banks" (​2/​24/​21); "Mischler Financial Joins '​Impact' or Social Money Market Investing Wave" (​12/​5/​19); and "Dreyfus Launches '​Impact' or Diversity Government Money Market Fund" (​11/​21/​19). Click here to see the Federal Home Loan Bank Office of Finance'​s list of D&​I or diversity and inclusion, dealers.

In related news, a Prospectus Supplement for Morgan Stanley Institutional Liquidity Funds: ESG Money Market Portfolio states, "Effective on or about January 23, 2023, the Fund will operate as a '​retail money market fund,' as defined in Rule 2a-​7 under the Investment Company Act of 1940, as amended. A '​retail money market fund' is defined as a money market fund that has policies and procedures reasonably designed to limit all beneficial owners of the fund to natural persons. As a result, investments in the Fund will be limited to shareholder accounts beneficially owned by natural persons. Before the Effective Date, Morgan Stanley Distribution, Inc., the Fund'​s principal distributor, and authorized financial intermediaries will be required to take steps to remove any shareholder accounts that are not beneficially owned by natural persons and notify the Fund of any such accounts that continue to own shares of the Fund."

It states, "Although the Fund'​s conversion to a retail money market fund will not result in any change to the Fund'​s investment objective or changes to its principal investment strategies other than those resulting from its conversion to a retail money market fund, the conversion will result in certain other important changes summarized below. A prospectus for the Fund reflecting these and other related changes will be provided to the Fund'​s shareholders in connection with the conversion to a retail money market fund."

The filing adds, "The Fund currently operates as an '​institutional money market fund,' which is neither a '​government money market fund' nor '​retail money market fund' as such terms are defined or interpreted under Rule 2a-​7 under the Investment Company Act of 1940, as amended. As such, the Fund is required to price and transact in its shares at a net asset value per share reflecting market-​based values of its portfolio holdings (​i.​e., at a "​floating" net asset value per share), rounded to a minimum of the fourth decimal place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/​or redemption gates."

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BNY Mellon'​s Dreyfus unit recently published an article entitled, "Meet the Manager with Frank Gutierrez," which interviewed the portfolio manager on his background and discussed a number of topics in the money markets. Gutierrez says, "There is an evolution to being a portfolio manager that begins with a solid understanding of the markets and the sectors that you are covering. Being on a trading desk is a good segue into understanding the intricacies of whatever market you are working with. In my case, I was interested and had experience with executing short-​term money market securities. I also had an advocate. In my initial roles at JP Morgan Chase supporting the trading desks, I was mentored by a senior portfolio manager that identified me as someone who was passionate about markets and the liquidity space and saw leadership skills in me that would benefit the team. She ultimately hired me when a trader/​junior PM role became available and that gave me the first opportunity to join the desk and ultimately become a portfolio manager." (Note: Great to see so many old friends, and thanks for visiting us at the AFP Conference in Philadelphia! See you next year in San Diego.... We hope to see you at our upcoming Money Fund University in Boston, Dec. 15-​16.)

When asked, "Where does your passion for government portfolios and Fed policy stem from?" He responds, "Investing and managing portfolios within the short-​term fixed income space naturally drives you to be interested in Fed policy because Fed policy has a direct effect on our portfolios and our markets. In my opinion, the money market space has evolved, with government money market funds now encompassing the greatest share of assets. Fed policy, regulatory requirements, market technicals are some of the intricate things that affect money market investors and that we should understand as portfolio managers."

The Dreyfus PM continues, "​In the past, money markets were seen as '​just cash'. But the public has come to realize that money markets are more complex. At the same time the corporate cash sector has grown dramatically since the financial crisis and continues to evolve. Corporate treasury teams now play a larger role in internal decision making and they need partners that can guide them in these markets. Portfolio management in money markets was once seen as the first step to a career in fixed income but now that perspective has completely shifted. Cash investing requires someone that is very in tune with policy and macroeconomics. With the market getting more complex, investment managers are also required to adjust."

Dreyfus also queries, "When did you start to see the shift in perspectives around the importance of short-​term investments and money market funds?" Gutierrez responds, "I believe it changed after the great financial crisis (​GFC), which brought to bear a lot of risks in the markets. Repo, liquidity and funding risks had a direct effect on our markets. At the same time in 2008, the historic flight to quality led to record growth in money market fund assets under management (​AUM)."

He tells us, "​I was part of the money market team at JP Morgan Chase at the time. While we had sizable assets, the money markets were seen as mature and low risk. You started to see a shift in the appreciation that the money markets played a very critical role in the ecosystem. I believe that regulators, clients and treasurers started to be more in tune with the front end of the yield curve and short-​term investments as well."

Gutierrez also comments, "Around 10 or 15 years ago Bloomberg ran a story about a group of Dominican professionals working on Wall Street (​DOWS) who had formed a nonprofit organization. I was intrigued about their vision and values and reached out to them. The organization looks to play an important role in various significant ways. One was to connect Dominican professionals within finance or Wall Street, which at the time weren'​t that many. Secondly, the organization looks to work with Hispanic students both in high school and college, giving them mentoring opportunities to connect with Hispanic professionals."

He adds, "Additionally, the organization was brought together by the need to connect Dominican professionals in the US with professionals in the Dominican Republic as their capital markets evolved. As an example of the kind of impact it has, the American Chamber of Commerce in the Dominican Republic hosts a '​Dominican Week' annually where they bring corporations and professionals into the US to share and learn about best practices. For over 20 years now, the Chamber has asked DOWS to assist and coordinate a finance panel to exchange ideas and learn about the capital markets. As of today, I am the Vice President and a board member. The group has evolved but the mission remains the same, and I am very proud of the work it does to connect my passion for people and markets."

In other news, JP Morgan wrote last week that, "Internal MMFs lead institutional prime growth." They say, "Despite looming MMF reforms, prime MMF AUMs have actually grown this year. YTD, AUMs have increased by $​175bn, or 22%.... Much of the growth has come from retail prime funds, which have seen AUMs increase by $​125bn YTD. This is not surprising, as MMFs have been one of the best-​performing asset classes YTD -- retail prime MMFs are currently yielding around 3.​00% with minimal duration risks, which also means they are a relatively safe place to hide out from market volatility."

They explain, "Notably, institutional prime AUMs have also grown YTD by about $​54bn. This is somewhat surprising given the prospect of MMF reform, which would have large implications for institutional prime MMFs and their utility as cash management vehicles for many corporations. However, a closer look at institutional prime AUMs reveals that over half of institutional prime AUMs belong to internal prime MMFs, which, as the name suggests, serve as internal cash management vehicles for other types of funds (​e.​g., equity, bond, etc.) managed by the same fund family and are not publicly available for direct investment."

JPM writes, "We estimate internal institutional prime MMFs1 currently hold about $​360bn of AUMs, while public institutional prime MMFs (​the prime funds that are publicly available to institutional investors for direct investment) hold about $​300bn. And when we look at the overall prime MMF market, internal institutional prime funds represent 37% of the market, versus 33% for retail prime funds and 30% for public institutional prime funds."

They explain, "The AUM growth on the institutional prime MMF side has been entirely driven by these internal funds; public institutional prime MMF AUMs haven'​t really budged YTD. This means that positive flows into institutional prime MMFs have been the effect of fund managers holding more cash, as negative returns have plagued both the equity and fixed income markets. Much like retail investors, these fund managers see superior yields with minimal volatility and duration risks, making prime MMFs an ideal place to temporarily park their cash until they see a better entry point back into the markets. And due to the nature of internal MMFs and their investor base, the prospect of reform isn'​t as much a deterrent as it is for most institutional investors, such as corporations that desire same-​day liquidity."

Finally, JPM tells us, "Considering the above factors, to the extent Fed action remains hawkish and uncertain, we expect to continue to see prime MMF inflows in the near term. Nevertheless, forthcoming news on MMF reform specifics and/​or changes in expected Fed policy could extinguish the trend, but we expect the attraction of prime yields to retail and internal investors will continue into the foreseeable future."

​

Earlier this month, researchers at the European Central Bank (​ECB) published a working paper entitled, "Is the EU Money Market Fund Regulation Fit for Purpose? Lessons from the COVID-​19 Turmoil." The Abstract tells us, "​The market turmoil in March 2020 highlighted key vulnerabilities in the EU money market fund (​MMF) sector. This paper assesses the effectiveness of the EU'​s regulatory framework from a financial stability perspective, based on a panel analysis of EU MMFs at a daily frequency. First, we find that investment in private debt assets exposes MMFs to liquidity risk. Second, we find that low volatility net asset value (​LVNAV) funds, which invest in non-​public debt assets while offering a stable NAV, face higher redemptions than other fund types. The risk of breaching the regulatory NAV limit may have incentivised outflows among some LVNAV investors in March 2020. Third, MMFs with lower levels of liquidity buffers use their buffers less than other funds, suggesting low levels of buffer usability in stress periods. Our findings suggest fragility in the EU MMF sector and call for a strengthened regulatory framework of private debt MMFs."

It explains, "​Following the global financial crisis, EU legislators have introduced new rules on money market funds (​MMFs), in particular through the adoption of the EU MMF Regulation in 2017. The COVID-​19 market turmoil in March 2020 tested the resilience of the MMF sector as private debt MMFs faced large investor outflows. We focus on the events in March 2020 to assess the effectiveness of the EU MMF Regulation from a financial stability perspective…. Our paper contributes to the literature on run risks in MMFs and how regulation can impact incentives among MMF investors and managers. We assess key aspects of the EU MMF Regulation, with a particular focus on low-​volatility net asset value (​LVNAV) funds and weekly liquidity requirements. By investigating the behaviour of investors and fund managers during the COVID-​19 market turmoil in March 2020, we provide new evidence for fragility in the EU MMF sector and call for a strengthened regulatory framework, in particular for private debt MMFs."

The authors write, "Our results identify three key vulnerabilities in the EU MMF sector. First, investment in private debt assets exposes MMFs to liquidity risk. We find that investors in MMFs investing in less liquid assets redeem more strongly than other investors during crisis periods. Second, LVNAV funds are particularly vulnerable to liquidity shocks as they invest in non-​public debt assets while offering a stable NAV. The prospect of breaching the regulatory NAV limit may have incentivised outflows among some LVNAV investors during the March 2020 turmoil. Third, although some LVNAV funds experienced large outflows, fund managers did not draw down on their weekly liquid assets to the same extent, suggesting low levels of buffer usability. According to the MMF Regulation (​MMFR), falling below liquidity requirements can lead LVNAV and CNAV MMFs to consider ap- plying extraordinary liquidity measures, which may encourage investors to redeem early. We find that investors redeem more strongly from MMFs with lower liquidity buffers than from funds with larger buffers. At the same time, we find that funds with lower levels of weekly liquidity buffers use their buffers less than funds with higher buffers, suggesting a preference for those funds to sell other (​often less liquid) assets, possibly to avoid getting too close or falling below the regulatory threshold."

The "Introduction" says, "​MMFs play a critical role in the financial system. They provide short-​term funding to issuers, in particular banks, and are used as cash management vehicles by investors. MMF shares display cash-​like properties since they are redeemable on demand and are typically perceived as providing low-​risk and stable investments. Similarly, MMFs are commonly expected to raise liquidity by allowing assets to mature, rather than selling them in secondary markets. However, even though MMFs are generally perceived as safe and liquid investments, they are subject to credit and liquidity risks, in particular when investing in less frequently traded instruments such as commercial paper and certificates of deposit issued by the private sector (​Financial Stability Board (​2020), Bouveret and Danieli (​2021))."

It continues, "The 2008 global financial crisis highlighted several key vulnerabilities through which MMFs can amplify risks in the financial system (​International Organization of Securities Commissions (​2012)). A prominent example is the Reserve Primary Fund in the US. When the Reserve Primary Fund’​s share price fell below its constant share price (’​broke the buck’), other prime funds also suffered severe outflows and falling returns (​McCabe (​2010)). Since then, legislators in Europe and the US have adopted new rules to make the sector more resilient. In 2017, the EU adopted the MMF Regulation, which among other rules (​i) requires constant NAV (​CNAV) funds to invest in public debt; (​ii) introduces an additional fund type (​LVNAV) that aims to offer a stable NAV while investing in a broader range of instruments; and (​iii) introduces daily and weekly liquidity requirements with a view to strengthen MMFs’ ability to meet redemptions and mitigate procyclical asset sales."

The ECB staffers comment, "​Despite the experience of the 2008 global financial crisis and the new regulatory framework, the COVID-​19 turmoil has been challenging for MMFs’ liquidity management. Following the onset of the crisis in early 2020, private debt MMFs (​meaning variable NAV (​VNAV) and LVNAV funds) experienced significant outflows, while public debt CNAV funds saw net inflows.... At the same time, the liquidity of money market instruments on the asset side of many MMFs deteriorated. This was particularly the case for VNAV and LVNAV funds, which invest largely in commercial paper and certificates of deposit…. While the level of stress stabilised following central bank interventions, this episode highlighted important vulnerabilities in the sector. At the same time, it raised questions about the EU MMF Regulation’​s effectiveness to ensure that private debt MMFs are capable of meeting large and unexpected outflows without spillovers to the MMF sector and the broader financial system. This paper assesses the effectiveness of the EU MMF Regulation in safeguarding financial stability, with a particular focus on the developments during the COVID-​19 turmoil."

They tell us, "We run multivariate panel regressions to study several hypotheses about the behaviour of investors and fund managers during the COVID-​19 turmoil. First, we test whether investors redeem more strongly from funds which hold less liquid portfolio assets during the stress period. In response to large redemptions, private debt MMFs may be forced to sell assets at a discount to accommodate those redemptions. However, the secondary market liquidity for commercial papers and certificates of deposit usually depends on the willingness of the issuing banks to buy back their own paper, which can be hampered in a stress scenario. Investors may anticipate this and redeem more strongly from funds which invest in less liquid assets, as these assets are harder to sell in a stress scenario. Next, we focus on certain rules under the EU MMF Regulation to further explain investor behaviour. LVNAV funds are required to switch from a stable to a variable NAV if they breach a certain valuation threshold. Since investors value MMFs for their stable NAV, under a second hypothesis, we test whether LVNAVs face higher outflows if they approach their regulatory threshold for a stable NAV. Third, funds with liquidity buffers below a certain regulatory threshold are required to consider liquidity gates or similar measures to improve their liquidity management. Since this can restrict investor redemptions, we test whether funds with lower liquidity buffers (​and higher risk of employing liquidity management tools) face stronger outflows in crisis times. Fourth, we look at the behaviour of fund managers who may be anticipating investor responsiveness to the fund’​s liquidity level. We study if funds with low liquidity levels are reluctant to use their liquidity buffers when facing redemptions in an attempt to avoid further outflows."

The paper adds, "Our empirical tests are based on a large and granular dataset containing fund-​level information from Crane Data, with daily observations of EU MMFs between January 2019 and May 2020. The sample covers around 70% of the EU MMF sector. This allows us to run our regressions at a high frequency and take a detailed look at the fast-​moving developments in the MMF sector around the COVID-​19 shock. The data also enables us to control for a wide array of potentially confounding factors such as past returns, past volatility of returns, fund age and size, fund currency, as well as portfolio illiquidity. In addition, all our regressions include fund and time fixed effects to capture additional factors which we cannot control for directly. Furthermore, we cluster standard errors at a fund level to account for heteroskedasticity and autocorrelation across observations."

Finally, they write, "Our results identify three key vulnerabilities in the EU MMF sector. First, investment in private debt assets exposes MMFs to heightened risk of outflows during stress. We find that investors in MMFs investing in less liquid assets redeem more strongly than other investors during the COVID-​19 turmoil. Second, LVNAV funds are particularly vulnerable to liquidity shocks as they invest in non-​public debt assets while offering a stable NAV. During crisis periods, outflows are around 1.​8-​2.​4 percentage points larger for LVNAV funds that were close to the lower valuation threshold on the previous day, relative to other LVNAV funds. The prospect of breaching the regulatory NAV limit may have incentivised outflows among some LVNAV investors during the March 2020 turmoil. Third, although some LVNAV funds experienced large outflows, fund managers did not draw down on their weekly liquid assets to the same extent, suggesting low levels of buffer usability. According to the MMF Regulation (​MMFR), a breach of liquidity requirements can lead LVNAV and CNAV MMFs to consider applying extraordinary measures, which may incentivise investors to redeem early. We find that investors redeem more strongly from MMFs with lower liquidity buffers than from funds with larger buffers. At the same time, we find that funds with lower levels of weekly liquidity buffers use their buffers less than funds with higher buffers, suggesting a preference for those funds to sell other (​often less liquid) assets, possibly to avoid getting too close or falling below the regulatory threshold. These findings point to fragilities in the EU MMF sector and underline the need for enhanced MMF regulation. The remainder of this paper is structured as follows. Section 2 reviews the literature on MMF vulnerabilities and the regulatory framework. Section 3 develops the hypotheses. Section 4 describes the dataset, while section 5 presents the analysis and empirical findings. Section 6 concludes."

​

Money market mutual funds are hot and getting hotter, with articles on them appearing in Barron'​s, The Wall Street Journal and the Financial Times on Friday alone. Barron'​s piece, "Yields on Money-​Market Mutual Funds Near 3%. How to Buy In," explains, "Cash hasn'​t looked this good in money-​market mutual funds for a long time. Yields are averaging 2.​77% [​now 2.​80%], up from 0.​02% in early January, according to Crane Data. Retail money funds could soon cross the 3% threshold, assuming that the Federal Reserve keeps raising its benchmark federal-​funds rate. 'Money funds follow the Fed, so there'​s no mystery of where yields are going,' says Peter Crane, president and publisher of Crane Data and Money Fund Intelligence. 'You haven'​t seen 3% to 4% yields since prior to the [​2008-​09] financial crisis,' he adds." (Note: Visit us at booth #​458 at AFP 2022 in Philadelphia this week, and register for our Money Fund University, Dec. 15-​16 in Boston, Mass!)

It tells us, "​Plenty of banks and other financial companies offer comparable yields in savings products, of course. But money funds are now paying a lot more than bank savings accounts, which yield an average of 0.​16%, according to Bankrate.​com. Other types of bank-​sponsored accounts yield more than 2%, but they aren'​t as convenient for investors. Indeed, money funds tend to be used as a parking place for cash between investments or trades. The funds hold $​4.​6 trillion in assets, making them the third-​largest category of mutual funds on the market, after domestic equities and taxable bonds, according to the Investment Company Institute, an industry trade group."

The quote, "'You'​re in cash because you might need the money today or tomorrow, period,' says Crane, referring to money funds. Institutional investors, holding $​3 trillion in money-​fund assets, also use the funds for liquidity and stability, says Deborah Cunningham, senior portfolio manager at asset manager Federated Hermes. '​They need daily liquidity at par in an instrument they are comfortable with -- and that provides safety and security,' she says."

The Barron'​s article comments, "Fidelity Investments is the biggest player, with more than $​935 billion in money-​fund assets. Its offerings include the Fidelity Money Market fund (​SPRXX), a prime fund with a 2.​79% yield. Its government-​backed fund, Fidelity Government Money Market (​SPAXX), yields 2.​58%. For investors in a high tax-​bracket, Fidelity Tax-​Exempt Money Market (​FMOXX) may be the best bet. It yields 1.​75%, equivalent to a taxable yield of 3.​43%, according to Fidelity. Vanguard Group'​s funds may yield slightly more, reflecting the fund company'​s ultralow expense ratios. The Vanguard Federal Money Market fund (​VMFXX) has an expense ratio of 0.​11%, for instance, and yields 2.​82%."

It adds, "​That stands to reason: Fund companies earn quite a bit off the fees. Schwab, for one, reported revenue of $​132 million off money funds in the third quarter, up from $​29 million a year earlier, when the company had to issue fee waivers to compensate for ultralow market yields. That isn'​t the case anymore as money funds become more lucrative, both for their corporate sponsors and investors looking to park some cash."

The FT writes, "Retail investors take shelter in cash after stock market rout." They say, "Retail investors are piling into cash after a brutal sell-​off in financial markets this year triggered trillions of dollars in losses, stamping out enthusiasm for riskier assets. Nearly $​140bn has poured into retail money market funds so far in 2022, according to the Investment Company Institute, taking the size of these vehicles to $​1.​55tn after 10 straight weeks of fresh investment. Inflows have totalled almost $​36bn in the past three weeks alone."

The update continues, "​That rush into cash follows a long and volatile sell-​off in US equity markets this year.... 'It has been one of these years where everyone has gotten torched and it really is an environment where you feel like you don'​t want to put your toes in the water,' said Joe D'​Angelo, who runs asset manager PGIM Fixed Income'​s money market business. The higher returns available on money market funds -- which have steadily increased since the Fed started raising interest rates in March -- are also enticing everyday investors, particularly as interest rates on savings accounts at big banks such as JPMorgan Chase and Bank of America hover near zero."

It states, "Fidelity'​s $​240bn government money market fund now yields roughly 2.​6 per cent, while the yield on Vanguard'​s $​218bn Federal money market fund rose to 2.​83 per cent this month. An index of the 100 largest money market funds run by Crane Data, which tracks the industry, shows yields have climbed on average to 2.​77 per cent from 0.​02 per cent at the start of the year. '​For individuals, for the first time in a long time, you can get some return,' Steve Sosnick, chief strategist at Interactive Brokers, said of the funds. 'For years we'​ve heard '​there is no alternative', but now there is an alternative.'"

The FT tells us, "Retail investors have been joined by big asset managers as well, who are increasingly keeping money on the sidelines as they attempt to wait out the ructions in both equity and fixed income markets. A closely followed Bank of America survey this week showed asset managers in October were holding 6.​3 per cent of their portfolios in cash, the highest level since April 2001. But even as many seek refuge in cash, institutional money market funds have still been hit by $​87.​4bn of redemptions since the Fed started increasing interest rates this year, taking outflows for 2022 above $​250bn. The withdrawals have been driven in part by companies spending the excess they built up to weather the pandemic. Analysts at Goldman Sachs warned last month that '​cash balances are back to pre-​pandemic norms' for both blue-​chip companies and riskier, junk-​rated businesses."

It explains, "'Corporate cash has been used to pay down debt, used to invest in their businesses and with inflation things are more expensive,' said Matt Jones, head of liquidity distribution at Western Asset Management. 'Costs of running a business are higher than it was.' ... 'We saw more sophisticated clients go directly into markets themselves,' said John Tobin, CIO of Dreyfus, adding that some clients invested in short-​term instruments such as commercial paper, Treasury bills or bank certificates of deposit."

Finally, the FT adds, "Money market funds have not been popular for long, but managers are wondering if their pre-​eminence is set to continue, said John Croke, head of active fixed income products at Vanguard. '​If inflation stays high, it ensures that rates will stay positive for longer, and money market funds will retain their relevance for longer.'" (​See also, The Wall Street Journal'​s, "You'​re Giving Away Yield and Don’​t Even Know It.")

​

The Securities and Exchange Commission'​s latest monthly "Money Market Fund Statistics" summary shows that total money fund assets decreased by $​9.​4 billion in September to $​5.​096 trillion. The SEC shows that Prime MMFs increased by $​15.​8 billion in September to $​975.​9 billion, Govt & Treasury funds decreased $​20.​8 billion to $​4.​013 trillion and Tax Exempt funds decreased $​4.​4 billion to $​106.​8 billion. Taxable yields skyrocketed in September after surging in August. 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: For those attending the AFP Conference in Philadelphia next week, October 23-​25, please stop by to see us at booth #​458! Also, register soon for our upcoming Money Fund University, which takes place Dec. 15-​16 in Boston, Mass!)

September'​s asset decrease follows an increase of $​3.​5 billion in august, $​57.​4 billion in July, $​26.​6 billion in June, decreases of $​19.​7 billion in May and $​63.​3 billion in April, an increase of $​40.​1 billion in March, and decreases of $​29.​3 billion in February and $​125.​1 billion in January. Assets gained $​122.​9 billion in December, $​53.​7 billion in November and $​7.​9 billion in October. Over the 12 months through 9/​30/​22, total MMF assets have increased by $​65.​1 billion, 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.​096 trillion in assets, $​975.​9 billion was in Prime funds, up $​15.​8 billion in September. Prime assets were up $​43.​5 billion in August, $​56.​6 billion in July, $​8.​5 billion in June, $​9.​4 billion in May, down $​11.​7 billion in April, up $​29.​5 billion in March, down $​2.​7 billion in February, up $​10.​7 billion in January, and 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. Prime funds represented 19.​2% of total assets at the end of September. They'​ve increased by $​105.​9 billion, or 12.​2%, over the past 12 months. (Month-​to-​date in October through 10/​19, total MMF assets have decreased by $​4.​0 billion, according to our MFI Daily.)

Government & Treasury funds totaled $​4.​013 trillion, or 78.​8% of assets. They decreased $​20.​8 billion in September, $​47.​1 billion in August, increased $​8.​2 billion in July, $​14.​4 billion in June, decreased by $​36.​7 billion in May, decreased $​57.​1 billion in April, increased $​8.​7 billion in March, decreased by $​25.​8 billion in February and $​135.​2 billion in January, after increasing by $​144.​4 billion in December, $​76.​0 billion in November, $​21.​0 billion in October and $​20.​4 billion in Sept. Govt & Treasury MMFs are down $​50.​0 billion over 12 months, or -​1.​2%. Tax Exempt Funds decreased $​4.​4 billion to $​106.​8 billion, or 2.​1% of all assets. The number of money funds was 304 in September, unchanged from the previous month and down 10 funds from a year earlier.

Yields for Taxable MMFs and Tax Exempt MMFs surged higher again in September. The Weighted Average Gross 7-​Day Yield for Prime Institutional Funds on September 30 was 2.​97%, up 63 bps from the prior month. The Weighted Average Gross 7-​Day Yield for Prime Retail MMFs was 3.​19%, up 67 bps from the previous month. Gross yields were 2.​91% for Government Funds, up 68 basis points from last month. Gross yields for Treasury Funds were up 61 bps at 2.​81%. Gross Yields for Tax Exempt Institutional MMFs were up 75 basis points to 2.​21% in September. Gross Yields for Tax Exempt Retail funds were up 51 bps to 2.​15%.

The Weighted Average 7-​Day Net Yield for Prime Institutional MMFs was 2.​92%, up 63 bps from the previous month and up 286 basis points from 9/​30/​21. The Average Net Yield for Prime Retail Funds was 2.​91%, up 68 bps from the previous month, and up 289 bps since 9/​30/​21. Net yields were 2.​68% for Government Funds, up 68 bps from last month. Net yields for Treasury Funds were also up 60 bps from the previous month at 2.​59%. Net Yields for Tax Exempt Institutional MMFs were up 75 bps from August to 2.​11%. Net Yields for Tax Exempt Retail funds were up 52 bps at 1.​90% in September. (​Note: These averages are asset-​weighted.)

WALs and WAMs were mostly down in September. The average Weighted Average Life, or WAL, was 37.​9 days (​down 1.​1 days) for Prime Institutional funds, and 51.​0 days for Prime Retail funds (​up 2.​2 days). Government fund WALs averaged 63.​0 days (​down 0.​8 days) while Treasury fund WALs averaged 63.​6 days (​down 3.​0 days). Tax Exempt Institutional fund WALs were 10.​0 days (​up 1.​2 days), and Tax Exempt Retail MMF WALs averaged 17.​9 days (​up 0.​8 days).

The Weighted Average Maturity, or WAM, was 14.​8 days (​down 2.​0 days from the previous month) for Prime Institutional funds, 12.​6 days (​down 1.​5 days from the previous month) for Prime Retail funds, 15.​9 days (​down 2.​4 days from previous month) for Government funds, and 25.​9 days (​down 0.​8 days from previous month) for Treasury funds. Tax Exempt Inst WAMs were up 1.​5 days to 10.​0 days, while Tax Exempt Retail WAMs were up 1.​2 days from previous month at 17.​3 days.

Total Daily Liquid Assets for Prime Institutional funds were 52.​4% in September (​down 0.​3% from the previous month), and DLA for Prime Retail funds was 41.​8% (​down 0.​3% from previous month) as a percent of total assets. The average DLA was 80.​3% for Govt MMFs and 99.​1% for Treasury MMFs. Total Weekly Liquid Assets was 68.​2% (​up 2.​2% from the previous month) for Prime Institutional MMFs, and 52.​6% (​down 0.​7% from the previous month) for Prime Retail funds. Average WLA was 88.​6% for Govt MMFs and 99.​7% for Treasury MMFs.

In the SEC'​s "Prime Holdings of Bank-​Related Securities by Country table for September 2022," the largest entries included: Canada with $​93.​1 billion, Japan with $​81.​4 billion, the U.​S. with $​64.​5B, France with $​49.​1 billion, the Netherlands with $​34.​5B, Aust/​NZ with $​29.​8B, Germany with $​27.​7B, the U.​K. with $​25.​8B and Switzerland with $​7.​2B. The gainers among the "Prime MMF Holdings by Country" included: the U.​S. (​up $​9.​7B), the Netherlands (​up $​4.​1B), Canada (​up $​3.​9B), Japan (​up $​2.​2B), Germany (​up $​1.​7B) and Aust/​NZ (​up $​1.​3B). Decreases were shown by: France (​down $​10.​1B), the U.​K. (​down $​4.​2B) and Switzerland (​down $​0.​1B).

The SEC'​s "Prime Holdings of Bank-​Related Securities by Region" table shows The Americas had $​157.​7 billion (​up $​13.​7B), while Asia Pacific had $​130.​4B (​up $​1.​4B). Eurozone subset had $​121.​5B (​down $​11.​5B), while Europe (​non-​Eurozone) had $​73.​3B (​down $​12.​2B from last month).

The "​Prime MMF Aggregate Product Exposures" chart shows that of the $​970.​9B billion in Prime MMF Portfolios as of September 31, $​447.​3B (​46.​1%) was in Government & Treasury securities (​direct and repo) (​up from $​414.​9B), $​211.​3B (​21.​8%) was in CDs and Time Deposits (​down from $​221.​9B), $​159.​0B (​16.​4%) was in Financial Company CP (​down from $​161.​4B), $​115.​9B (​11.​9%) was held in Non-​Financial CP and Other securities (​down from $​121.​7B), and $​37.​4B (​3.​9%) was in ABCP (​up from $​36.​4B).

The SEC'​s "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.​S. with $​103.​4 billion, Canada with $​75.​3 billion, France with $​54.​9 billion, the U.​K. with $​26.​6 billion, Germany with $​10.​1 billion, Japan with $​74.​0 billion and Other with $​23.​4 billion. All MMF Repo with the Federal Reserve was up $​151.​2 billion in September to $​2.​221 trillion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 5.​0%, Prime Retail MMFs with 6.​6%, Tax Exempt Inst MMFs with 1.​0%, Tax Exempt Retail MMFs with 2.​3%, Govt MMFs with 12.​3% and Treasury MMFs with 9.​7%.

​

Citi writes in a recent Viewpoint, "Fed balance sheet: The primes they are a-​changin'." Authors Isfar Munir and Jason Williams explain, "Money market fund usage of the Fed'​s reverse repo facility (​RRP) reached a new high at the end of September, although this was mainly driven by a sizeable quarter-​end effect. More interestingly though, prime money market fund usage has now breached the $​300bln level. About 60% of US prime money market funds assets are in the RRP facility, a significant departure from the '​typical' makeup of prime fund holdings. Prime money market funds are receiving inflows in contrast to government funds and this may drive RRP usage higher.... Usage of the Fed'​s reverse repo facility (​RRP) dropped by $​136bln as the quarter-​end effect subsided."

Citi'​s piece tells us, "​The large drop in RRP usage reflects a normalization in usage post-​quarter- end. The large build up in RRP balances in the second half of September appears to be mainly driven by quarter-​end -- the build-​up just started earlier than it often does. RRP usage has since returned to around $​2,​250 billion, where it was prior to the September FOMC meeting. With rate hike risks still skewed to the upside, risks to RRP usage remain skewed to the upside -- but our base case remains for RRP usage to stay sticky around current levels through to year-​end."

It continues, "The Fed'​s interest expenses on IORB and RRP (​along with costs of operating the Fed) have now exceeded the interest income the Fed generates from the SOMA. The Fed does not follow GAAP accounting and cannot take a loss on capital either. The Fed accounts for the negative interest income by creating a negative liability on its balance sheet for its remittances to Treasury. The Fed '​prints' reserves needed to make IORB/​RRP payments that are owed."

Citi says, "Prime money market funds have become non-​negligible users of the RRP facility in recent months -- usage in September broke the $​300bln mark. The driver of this behavior is likely the same aversion to duration that is keeping government money market funds heavily invested in the RRP. While prime funds have a much broader set of investment options available to them compared to government funds, and most of these options (​commercial paper, bank CDs, etc.) have higher yields than the RRP facility (​i.​e. Fed expectations on a duration matched basis), they will all have longer than overnight duration. As such, for prime funds looking for the shortest duration asset they can invest in, RRP is the only option that is available in scale. US-​based prime money market funds held $​510bln AUM at the end of September -- implying that 60% of their assets are in the RRP facility." (Note: Crane Data'​s statistics show Prime MMFs at $​961 billion on 9/​30/​22, with 35.​0% investing in the Fed RRP.)

The article also states, "Money market fund holding data shows that government funds are continuing to shift out of T-​bills and allocating an increasing share to the RRP facility. It'​s important to note that the holdings data is reflective of month-​end holdings and thus the September holdings will be heavily skewed by the quarter-​end effect. With that in mind, decreased T-​bill holdings has been a trend for the last year or so -- and this trend is unlikely to change while funds generally minimize duration. While money fund lending in repo markets was depressed by the month-​end effect, tri-​party repo continues to print below the RRP offer rate. While money market funds are likely to still lend in tri-​party repo to maintain longer-​run relationships with counterparties, the amount of cash deployed in this manner is likely to remain downward biased. These are all factors that can cause RRP usage to increase, assuming that government MMF AUM remains relatively stable around current levels."

Finally, it adds, "The largest money market fund users of RRP remained below the $​160bln counterparty cap even with the increased usage due to quarter-​end. The highest using fund allocated around $​130bln to RRP. The September FOMC minutes did not mention any discussion of increasing the RRP counterparty caps, in contrast to the June and July FOMC minutes. There remains little need for the Fed to increase the counterparty caps at current usage levels, especially now that GSE usage of RRP has declined." (​For more, see our Oct. 13 News, "Oct. MF Portfolio Holdings: Repo, Agencies Higher; T-​Bills Fall Again.")

In other news, BlackRock briefly discussed money market funds on its recent Q3 2022 Earnings Call. CFO Gary Shedlin comments, "​Over the last 12 months, BlackRock'​s broad-​based platform has generated approximately $​400 billion of total net inflows, representing positive organic base fee growth of 2%. During a tumultuous market environment, BlackRock generated third quarter long-​term net inflows of $​65 billion, representing approximately 3% annualized organic asset growth. Quarterly long-​term net inflows were partially offset by net outflows from cash and advisory AUM. However, total quarterly annualized organic base fee decay of 4% reflected outflows from higher fee precision ETFs, the continued impact of elevated redemptions in active equity and fixed income mutual funds, and outflows in institutional money market funds."

He explains, "​Third quarter base fees and securities lending revenue of $​3.​5 billion was down 10% year over year, broadly in line with the decline in our average AUM. The negative revenue impact of approximately $​1.​9 trillion of market beta and foreign exchange movements on AUM over the last 12 months was partially offset by positive organic base fee growth over the same period and the elimination of discretionary yield support, money market fund fee waivers versus a year ago.... As a result of continued global equity and bond market declines toward the end of the quarter, including the impact of FX-​related dollar appreciation, we entered the fourth quarter with an estimated base fee run rate approximately 7% lower than our total base fees for the third quarter."

Shedlin says, "Our cash management platform experienced net outflows of $​40 billion, primarily driven by redemptions from U.​S. government money market funds, as reduced debt issuance in a higher rate environment, coupled with ongoing capital management and a general reduction in corporate cash levels, contributed to industrywide institutional outflows. As rates stabilize, BlackRock is well positioned to grow market share by leveraging our scale, product breadth, technology and risk management on behalf of liquidity clients."

He adds, "Finally, third quarter advisory net outflows of $​9 billion were primarily linked to the successful transition of the last remaining assets managed in connection with our assignment with the New York Federal Reserve Bank. Throughout our history, BlackRock is led by listening to clients. This connectivity has been foundational to our growth over the last 34 years, and our relationships with clients have never been deeper. We have always capitalized on market disruption to emerge stronger by continuing to innovate, to work collaboratively, and to deliver the full power of our platform."

Asked about events in the U.​K., CEO Larry Fink responds, "​I don'​t know the Gilt markets since we'​ve been on this call, but as of this morning, Gilt markets were stable. So it appears much of the reconstruction of these products may have been done, and the market maybe should be a little more normalized.... What I do believe we should do, like BlackRock was a leader in terms of money market reform, we want to work with the regulators, be a part of this to try to say, if volatility is going to continue to be this large, maybe there has to be whole redesigning of some of the products, whether that is in a commingled fund or in separate accounts. But we are going to be part of the solution to move this forward, as we always are. But I think this is a specific event to the U.​K. pension market."

​

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (​with data as of Oct. 14) includes Holdings information from 41 money funds (​up 8 from two weeks ago), which represent $​1.​403 trillion (​up from $​925.​8 billion) of the $​5.​011 trillion (​28.​0%) in total money fund assets tracked by Crane Data. (​Our Weekly MFPH are e-​mail only and aren'​t available on the website.) (Note: For those attending the AFP Conference in Philadelphia next week, October 23-​25, please stop by to see us at booth #​458! Also, registrations are still being taken and sponsorships are still available for our upcoming Money Fund University in Boston, Dec. 15-​16.)

Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (​Repo) totaling $​655.​6 billion (​up from $​555.​1 billion two weeks ago), or 62.​8%; Treasuries totaling $​272.​3 billion (​up from $​264.​8 billion two weeks ago), or 26.​1%, and Government Agency securities totaling $​67.​0 billion (​up from $​62.​8 billion), or 6.​4%. Commercial Paper (​CP) totaled $​21.​3 billion (​up from two weeks ago at $​17.​7 billion), or 2.​0%. Certificates of Deposit (​CDs) totaled $​7.​9 billion (​down from $​8.​2 billion two weeks ago), or 0.​8%. The Other category accounted for $​14.​5 billion or 1.​4%, while VRDNs accounted for $​4.​7 billion, or 0.​5%.

The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $​494.​4 billion (​47.​4%), the US Treasury with $​272.​3 billion (​26.​1% of total holdings), Federal Farm Credit Bank with $​32.​1B (​3.​1%), Federal Home Loan Bank with $​31.​5B (​3.​0%), Fixed Income Clearing Corp with $​18.​3B (​1.​8%), JP Morgan with $​18.​1B (​1.​7%), Barclays PLC with $​13.​6B (​1.​3%), RBC with $​11.​1B (​1.​1%), Mitsubishi UFJ Financial Group Inc with $​11.​0B (​1.​1%) and BNP Paribas with $​9.​4B (​0.​9%).

The Ten Largest Funds tracked in our latest Weekly include: Morgan Stanley Inst Liq Govt ($​141.​6B), State Street Inst US Govt ($​110.​4B), Allspring Govt MM ($​109.​1B), Dreyfus Govt Cash Mgmt ($​108.​1B), First American Govt Oblg ($​79.​4B), Invesco Govt & Agency ($​65.​7B), Morgan Stanley Inst Liq Treas Sec ($​49.​4B), State Street Inst Treasury Plus ($​46.​3B), Dreyfus Treas Sec Cash Mg ($​44.​2B) and Dreyfus Treas Obligations Cash Mgmt ($​40.​3B). (​Let us know if you'​d like to see our latest domestic U.​S. and/​or "​offshore" Weekly Portfolio Holdings collection and summary.)

In related news, ICI 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.

The MMF Holdings release says, "The Investment Company Institute (​ICI) reports that, as of the final Friday in September, prime money market funds held 38.​6 percent of their portfolios in daily liquid assets and 52.​1 percent in weekly liquid assets, while government money market funds held 87.​4 percent of their portfolios in daily liquid assets and 92.​6 percent in weekly liquid assets." Prime DLA was up from 36.​3% in August, and Prime WLA was also up from 51.​2%. Govt MMFs' DLA was unchanged at 87.​4% and Govt WLA decreased from 93.​6% the previous month.

ICI explains, "At the end of September, prime funds had a weighted average maturity (​WAM) of 13 days and a weighted average life (​WAL) of 55 days. Average WAMs and WALs are asset-​weighted. Government money market funds had a WAM of 19 days and a WAL of 63 days." Prime WAMs were 1 day shorter and WALs were 2 days longer from the previous month. Govt WAMs were 2 days shorter and WALs were 2 days shorter from August.

Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas rose from $​232.​50 billion in August to $​271.​68 billion in September. Government money market funds' holdings attributable to the Americas rose from $​3,​695.​23 billion in August to $​3,​763.​18 billion in September."

The Prime Money Market Funds by Region of Issuer table shows Americas-​related holdings at $​271.​7 billion, or 51.​3%; Asia and Pacific at $​102.​4 billion, or 19.​3%; Europe at $​149.​1 billion, or 28.​2%; and, Other (​including Supranational) at $​6.​4 billion, or 1.​3%. The Government Money Market Funds by Region of Issuer table shows Americas at $​3.​763 trillion, or 95.​4%; Asia and Pacific at $​68.​3 billion, or 1.​7%; Europe at $​94.​3 billion, 2.​4%, and Other (​Including Supranational) at $​19.​0 billion, or 0.​5%.

Finally, J.​P. Morgan, in its "Short-​Term Market Outlook and Strategy," features a brief entitled, "September MMF holdings update: hide-​and-​seek more RRP." They write, "September was a record-​breaking month for MMF RRP usage -- MMFs devoted $​2.​21tn of the nearly $​2.​43tn parked at the Fed at month-​end, with government MMFs making up close to 79% of total uptake, prime MMFs 12.​5%, and non-​MMFs just 9.​0%.... As to be expected, the increase in RRP balances came predominantly from MMFs, which devoted $​148bn more in aggregate than they did in August. Of 87 total MMF counterparties in September, the largest any devoted to RRP was $​135bn, keeping in line with the past months of individual MMFs staying reasonably below the counterparty limit of $​160bn.... Still, nearly a third ($​302bn) of prime MMFs' portfolio went towards RRP at month-​end, and about half ($​1,​906bn) of government MMF AUMs."

JPM'​s piece continues, "As we similarly witnessed throughout second and third quarter, prime funds saw inflows leading into 3Q-​end, while government fund flows were flat month-​over-​month. Again, these prime inflows were driven by retail funds rather than institutional funds, underscoring the notion that cash is still among the best-​performing asset classes and a safe place to hide out amid a volatile market environment.... We expect positive MMF inflows to continue -- and rise -- into year-​end as they'​ve historically tended to ..., and this will likely contribute to corresponding further increases at the RRP facility."

It says, "With the September FOMC meeting (​and this week'​s corresponding minutes) remaining hawkish, and today'​s CPI report surprising to the upside, shortening pressures will prevail, pointing again to why we'​ve seen and will continue to see more use of RRP. Expectedly, MMF WAMs continued to fall throughout September; in fact, both government and prime MMF WAMs appear to be at all-​time lows, demonstrating the unprecedented uncertainty surrounding this cycle, even compared to the era of prime MMF reform implementation in 2016.... Moreover, in anticipation of the November FOMC meeting, at which OIS markets are currently pricing in around 75bp of hiking, we note that a majority of new month- over-​month T-​bill investment was in bills maturing in November (+$​103bn), and less so in those maturing in October (+$​57bn) as of month-​end."

JPM adds, "Furthermore, both government and prime MMFs significantly reduced their Treasury holdings in September as they further shifted into RRP, with government fund T-​bill holdings down by $​75bn (-​9%), government fund Treasury coupon holdings down by $​13bn (-​12%), and prime fund Treasury holdings down by $​10bn (-​20%) month-​over-​month. And consistent with the quarter-​end, MMFs shed Treasury repo (-$​58bn) and agency repo (-$​16bn) in September, with the bulk of the net monthly decline coming from French counterparties followed by UK, Canadian, and Japanese counterparties."

​

Crane Data'​s latest Money Fund Intelligence International shows that assets in European or "​offshore" money market mutual funds jumped over the past month to $​1.​018 trillion led by a surge in GBP funds. European MMF assets broke back above $​1 trillion level on Oct. 4 for the first time since early August, but they remain below their record high of $​1.​101 trillion in mid-​December 2021. These U.​S.-​style money funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, increased by $​44.​4 billion over the 30 days through 10/​14. (​Note that the increase in the U.​S. dollar has caused Euro and Sterling totals to decline when they'​re translated back into dollars.) The totals are down $​45.​0 billion (-​4.​2%) year-​to-​date.

Offshore US Dollar money funds are down $​4.​9 billion over the last 30 days and are up $​15.​7 billion YTD to $​550.​2 billion. Euro funds increased E2.​8 billion over the past month. YTD, they'​re down E6.​3 billion to E152.​1 billion. GBP money funds increased L37.​6 billion over 30 days; they are up by L7.​4 billion YTD to L254.​5B. U.​S. Dollar (​USD) money funds (​207) account for half (​54.​0%) of the "​European" money fund total, while Euro (​EUR) money funds (​93) make up 15.​3% and Pound Sterling (​GBP) funds (​130) total 30.​6%. We summarize our latest "​offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (​which went out to subscribers Monday), below.

Offshore USD MMFs yield 2.​90% (​7-​Day) on average (​as of 10/​14/​22), up from 2.​20% a month earlier. Yields averaged 0.​03% on 12/​31/​21, 0.​05% on 12/​31/​20, 1.​59% on 12/​31/​19 and 2.​29% on 12/​31/​18. EUR MMFs have finally left negative yield territory; they'​re yielding 0.​49% on average, up from -​0.​03% a month ago and 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 2.​05%, up 41 bps from a month ago, and up from 0.​01% on 12/​31/​21. Sterling yields were 0.​00% on 12/​31/​20, 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 September MFII Portfolio Holdings, with data as of 9/​30/​22, show that European-​domiciled US Dollar MMFs, on average, consist of 27% in Commercial Paper (​CP), 15% in Certificates of Deposit (​CDs), 27% in Repo, 14% in Treasury securities, 16% in Other securities (​primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 60.​2% of their portfolios maturing Overnight, 7.​2% maturing in 2-​7 Days, 7.​0% maturing in 8-​30 Days, 12.​4% maturing in 31-​60 Days, 6.​0% maturing in 61-​90 Days, 5.​5% maturing in 91-​180 Days and 1.​8% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (​32.​2%), France (​15.​4%), Canada (​12.​9%), Japan (​11.​2%), Sweden (​5.​3%), the Netherlands (​4.​6%), the U.​K. (​3.​5%), Australia (​3.​4%), Germany (​2.​5%) and Singapore (​1.​7%).

The 10 Largest Issuers to "​offshore" USD money funds include: the US Treasury with $​76.​3 billion (​14.​5% of total assets), Federal Reserve Bank of New York with $​25.​0B (​4.​7%), RBC with $​23.​8B (​4.​5%), BNP Paribas with $​23.​4B (​4.​5%), Sumitomo Mitsui Banking Corp with $​18.​9B (​3.​6%), Credit Agricole with $​17.​7B (​3.​4%), JP Morgan with $​13.​0B (​2.​5%), Skandinaviska Enskilda Banken AB with $​12.​7B (​2.​4%), Fixed Income Clearing Corp with $​12.​2B (​2.​3%) and Toronto-​Dominion Bank with $​11.​6B (​2.​2%).

Euro MMFs tracked by Crane Data contain, on average 47% in CP, 19% in CDs, 22% in Other (​primarily Time Deposits), 10% in Repo, 1% in Treasuries and 1% in Agency securities. EUR funds have on average 37.​8% of their portfolios maturing Overnight, 10.​7% maturing in 2-​7 Days, 19.​6% maturing in 8-​30 Days, 13.​7% maturing in 31-​60 Days, 4.​0% maturing in 61-​90 Days, 11.​4% maturing in 91-​180 Days and 2.​8% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (​33.​8%), Japan (​13.​2%), the U.​S. (​8.​6%), Germany (​6.​2%), Sweden (​6.​1%), the U.​K. (​5.​7%), Canada (​4.​2%), the Netherlands (​3.​9%), Austria (​3.​5%) and Belgium (​3.​3%).

The 10 Largest Issuers to "​offshore" EUR money funds include: Credit Agricole with E7.​8B (​5.​7%), BNP Paribas with E6.​2B (​4.​6%), Societe Generale with E5.​8B (​4.​2%), Republic of France with E5.​6B (​4.​1%), Credit Mutuel with E4.​9B (​3.​6%), Sumitomo Mitsui Banking Corp with E4.​8B (​3.​6%), DZ Bank AG with E4.​5B (​3.​3%), Agence Central de Organismes de Securite Sociale with E4.​5B (​3.​3%), Mitsubishi UFJ Financial Group Inc with E4.​2B (​3.​1%) and Barclays PLC with E3.​9B (​2.​8%).

The GBP funds tracked by MFI International contain, on average (​as of 9/​30/​22): 32% in CDs, 19% in CP, 29% in Other (​Time Deposits), 18% in Repo, 2% in Treasury and 0% in Agency. Sterling funds have on average 47.​6% of their portfolios maturing Overnight, 9.​1% maturing in 2-​7 Days, 11.​3% maturing in 8-​30 Days, 12.​9% maturing in 31-​60 Days, 2.​9% maturing in 61-​90 Days, 12.​8% maturing in 91-​180 Days and 3.​3% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: Canada (​17.​4%), France (​17.​3%), Japan (​15.​6%), the U.​K. (​9.​0%), Australia (​6.​0%), the Netherlands (​5.​7%), the U.​S. (​5.​6%), Sweden (​4.​6%), Germany (​3.​8%) and Spain (​2.​9%).

The 10 Largest Issuers to "​offshore" GBP money funds include: Mitsubishi UFJ Financial Group Inc with L6.​1B (​4.​5%), Bank of Nova Scotia with L5.​8B (​4.​3%), Toronto-​Dominion Bank with L5.​8B (​4.​3%), RBC with L5.​6B (​4.​1%), BNP Paribas with L5.​3B (​3.​9%), Mizuho Corporate Bank Ltd with L5.​0B (​3.​7%), Sumitomo Mitsui Trust Bank with L5.​0B (​3.​7%), Nordea Bank with L4.​5B (​3.​4%), Credit Agricole with L4.​3B (​3.​2%) and Barclays with L4.​2B (​3.​2%).

​

Crane Data is preparing for its next live event, our "​basic training" Money Fund University, which will take place December 15-​16, 2022 at the Hyatt Regency in Boston, Mass. 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, but this year'​s event will feature a slightly higher level "​Master'​s in Money Markets" agenda. The event also focuses on hot topics like money market fund regulations, money fund alternatives, offshore markets, and other recent industry trends. Our educational conference features a faculty of the money fund industry'​s top lawyers, strategists, and portfolio managers, and the Boston show will include a Holiday cocktail party and a free training session for Crane Data clients. We review the MFU agenda and some other upcoming conferences, below. (We hope to see many of you at the AFP Treasury show in Philadelphia next week too -- visit us at booth #​458!)

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. Registrations are $​750 are still being taken, and the latest agenda is available here. (E-​mail us to request the latest brochure, and make your hotel reservations soon!)

The morning of Day One (​12/​15/​22) of the 2022 MFU agenda includes: History & Current State of Money Market Mutual Funds with Peter Crane of Crane Data; The Federal Reserve & Money Markets with Katie Craig of BofA; Ratings, Monitoring & Performance with Kimberly Green of Fitch Ratings and Marissa Zuccaro of S&​P Global; and, Instruments of the Money Markets Intro with Teresa Ho of J.​P. Morgan Securities.

Day One'​s afternoon agenda includes: Repurchase Agreements with Chris Clarke of J.​P. Morgan Securities; Treasuries & Govt Agencies with Sue Hill of Federated hermes and Matt Lachance of TD Securities; Tax-​Exempt Securities & VDRNs with John Vetter of Fidelity Investments; Commercial Paper & ABCP with Rob Crowe of Citi Global Markets and CDs, TDs & Bank Debt with Vanessa McMichael of Wells Fargo Securities; and, Credit Analysis & Portfolio Management with Sean Lussier and Peter Hajjar of State Street Global Advisors.

Day Two'​s (​12/​16/​22) agenda includes: Money Fund Regulations: 2a-​7 Basics & History with Brenden Carroll of Dechert LLP and Jamie Gershkow of Stradley Ronon; Money Fund Regulations: Latest 2a-​7 Changes with Jon-​Luc Dupuy of K&​L Gates LLP and Brenden Carroll of Dechert LLP; European MMF Reforms & Offshore Funds with John Hunt of Sullivan & Worcester LLP, Barry Harbison of HSBC Global AM and Peter Crane of Crane Data; and Money Fund Data & Wisdom Demo/​Training with Peter Crane. The conference ends with its annual MFU "​Graduation" ceremony (​where diplomas are given to attendees).

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 $​750, exhibit space is $​2,​000, and sponsorship opportunities are $​3K (​Bronze), $​4K (​Silver), and $​5K (​Gold). A block of rooms has been reserved at the Boston Hyatt Regency. (​Please reserve before 11/​16.)

We'​d like to thank our past and pending MFU sponsors -- Dreyfus/​BNY Mellon, J.​P. Morgan Asset Management, Fitch Ratings, TD Securities, S&​P Global Ratings, Dechert LLP, BlackRock, Fidelity Investments, K&​L Gates, Federated Hermes, Credit Suisse and State Street -- for their support, and we look forward to seeing you in Boston in December. 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 the preliminary agenda for our next Bond Fund Symposium, which will also be held March 23-​24, 2023, at the Hyatt Regency in Boston, Mass. Our Bond Fund Symposium offers a concentrated program for fixed-​income managers and dealers with a focus on the ultra-​short segment. Registration for Bond Fund Symposium is $​1000; 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'​ll also soon be making plans for our next "​big show," Money Fund Symposium, which will be held June 21-​23, 2023, at the Hyatt Regency in Atlanta. (​Let us know if you'​d like details on speaking or sponsoring.) Also, mark your calendars for next year'​s European Money Fund Symposium, which will be held Sept. 25-​26, 2023, in Edinburgh, Scotland. Watch for details on these shows in coming weeks and months.

Also, money market mutual fund distributors and cash managers will be travelling to Philadelphia, Pa. for AFP 2022, the Association for Financial Professionals' big annual gathering of corporate treasurers, which takes place October 23-​25. AFP is the largest gathering of corporate investors in the country, attracting roughly 5,​000 treasury management professionals, as well as a host of large banks and institutional money fund managers.

At AFP, sessions involving money funds and/​or cash investing include: "Modernizing Liquidity And Investments For A Resilient Treasury," with American Honda Motor Company'​s Kimberly Kelly-​Lippert, MetLife'​s Thomas Lenahan, ICD'​s Sebastian Ramos and Kyriba'​s Bob Stark; "Global Insights And Best Practices In Short-​Term Investment Policies And Thinking?" with Citibank'​s Steven Kraus, Hitachi Vantara LLC'​s Catherine Fields and AMG Advanced Metallurgical Group'​s Dan Chila; "Heave-​Ho: Lifting Barriers And Creating Positive Social Outcomes Through Cash Investing" with Cabrera Capital'​s Robert Aguilar, SAP SE'​s Jerry Bernard, Navient Corporation'​s Scott Booher and BlackRock'​s Eion D'​Anjou; and, "Navigating Transformation In The Liquidity Investment Ecosystem," with Morgan Stanley'​s Scott Wachs, AbbVie Inc.'​s Timothy Kolenda, Comcast Capital Corporation'​s Roberta Eiseman and Autodesk Inc.'​s Brandon Hillstead.

Finally, thank you once again to those who supported last month'​s European Money Fund Symposium, which took place Sept. 25-​26 in Paris, France! Let us know if you'​d like to see the binder from this show (​available to clients only) or if you'​d like more details on any of our events. We hope to see you in Philly next week, in Boston in December (​or March), in Atlanta in June or in Edinburgh in September 2023!

​

The October issue of our Bond Fund Intelligence, which will be sent to subscribers Friday morning, features the stories, "Worldwide BF Assets Drop to $​11.​9 Trillion, Led by U.​S.," which reviews ICI'​s latest global bond fund statistics, and "EMFS: Soetan, Belfaida & Fleury on European USBFs," which reviews the session on ultra-​short bond funds at our recent European conference. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns plunged again in September while yields rose for the 12th straight month. 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.)

Our "Worldwide BF Assets" article says, "Bond fund assets worldwide decreased moderately in the latest quarter to $​11.​9 trillion, led by the four largest bond fund markets -- the U.​S., Luxembourg, Ireland and China. We review the ICI'​s 'Worldwide Open-​End Fund Assets and Flows, Second Quarter 2022' release and statistics below."

It continues, "​ICI'​s report says, 'Worldwide regulated open-​end fund assets decreased 11.​5% to $​59.​91 trillion at the end of the second quarter of 2022.... The Investment Company Institute compiles worldwide regulated open-​end fund statistics on behalf of the International Investment Funds Association (​IIFA)."

Our "EMFS on European USBFs" piece states, "Crane Data hosted its European Money Fund Symposium two weeks ago in Paris, and while the event focused on money funds domiciled outside the U.​S. there was a session on 'Ultra-​Short Bond Funds & Standard MMFs.' This segment featured Fitch Ratings' Abis Soetan, Aviva Investors' Mhammed Belfaida and BNP Paribas Asset Management'​s Marc Fleury. Soetan says, I'​m going to do a market overview [​and] define the space we'​re talking about. `​We'​ll discuss what'​s going on in markets and how that is impacting flows. I'​m going to compare the different types of funds used in cash segmentation strategies. Then I'​ll go through the rating criteria. Based on ratings profile of these funds, how are they different? What should you be looking at in the region to understand a fund'​s risk profile?'"

It states, "​He continues, '[​In Europe you have the] short-​term money market funds and standard money market funds. These fall under EU money market fund regulation. That just means that there'​s a limitation on how much these funds can take in terms of credit risk, market risk and liquidity risk.... For credit risk, it needs to be '​favorable credit quality,' and favorable means different things to different managers. I'​ll say generally it means investment grade.' (​Europe'​s 'Standard MMF' category is similar to our 'Conservative Ultra-​Short' category in the U.​S.)"

Our first News brief, "Returns Get Uglier; Yields Keep Rising," says, "Bond fund returns crashed yet again in September while yields rose for the 12th month in a row. Our BFI Total Index fell 3.​238% over 1-​month and fell 10.​50% over 12 months. The BFI 100 lost 3.​61% in Sept. and lost 11.​57% over 1-​year. Our BFI Conservative Ultra-​Short Index was down 0.​07% over 1-​month and down 0.​63% for 1-​year; Ultra-​Shorts fell 0.​50% and 2.​11%. Short-​Term returned -​1.​81% and -​6.​40%, and Intm-​Term fell 4.​32% in Sept. and 13.​69% over 1-​year. BFI'​s Long-​Term Index fell 5.​18% and 17.​27%. High Yield fell 3.​59% in Sept. and 11.​15% over 1-​year."

A second News brief, "Kiplinger'​s Says, 'Bond Funds Turbocharge Payouts,' explains, 'The typical short-​term taxable bond fund has lost a hard-​to-​swallow 4% to 6% this year through Sept. 9. Fast-​climbing interest rates exacted this heavy cost, usurping two years or more of yield.... Monthly payouts from the 10 largest such bond funds are riding a rocket ship, nearly doubling ... with more raises to come.'"

Another brief, "Morningstar'​s 'Turbulent September Markets Put ETF Investors on Defense,' says, 'September lived up to its reputation as the worst month of the year for investors.... Bonds offered little stability. The Morningstar US Core Bond Index pulled back 4.​43%, its deepest one-​month drawdown in over 20 years of live and back-​tested performance.... Investors' desire for stability made short-​dated U.​S. Treasury funds a popular choice and helped fixed-​income funds reel in $​13.​3 billion last month.'"

A BFI sidebar, "Barron'​s Likes Short-​Term BFs, quotes from the piece, 'Short-​Term Bonds Yield 4%. Why They Could Beat Cash.' It explains, 'Until recently, short-​term bonds were a yield wasteland: A two-​year Treasury note yielded 0.​21% a year ago and just 1% in January. Today, the yield is over 3.​8% and could soon touch 4%, thanks in good measure to the Federal Reserve'​s aggressive interest-​rate-​hiking campaign.... But this could be a good entry point for short-​term bonds: They may not fall much more, and yields are now high enough to withstand some price pressure. '​We are actually comfortable owning the front end of the yield curve here,' says Bob Miller, head of fundamental fixed income at BlackRock.'"

Finally, another sidebar, "BF Assets Plunge in Sept.," tells readers, "Bond fund assets plummeted in Sept. after falling in August. Assets have fallen hard in 8 out of 9 months in 2022. Total assets fell by $​113.​8 billion to $​2.​652 trillion last month, according to BFI. YTD, assets are down $​673.​4 billion (​through 9/​30/​22), and over 1-​year they’​re down $​685.​3 billion, or –​20.​5%."

​

Crane Data'​s October Money Fund Portfolio Holdings, with data as of Sept. 30, 2022, show Repo (​led by Fed repo) increasing yet again while Treasuries continued a deep 8-​month slide. Money market securities held by Taxable U.​S. money funds (​tracked by Crane Data) increased by $​15.​2 billion to $​4.​934 trillion in September, after decreasing $​20.​8 billion in August and increasing $​116.​1 billion in July. Holdings decreased $​2.​6 billion in June, $​58.​4 billion in May and $​55.​2 billion in April. Repo remained the largest portfolio segment, while Treasuries remained in the No. 2 spot. The Federal Reserve Bank of New York, which surpassed the U.​S. Treasury as the largest "​Issuer" four months ago, saw RRP issuance to MMFs jump $​147.​6 billion to $​2.​208 trillion after its first decline in 6 months last month. 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) increased $​74.​4 billion (​2.​8%) to $​2.​717 trillion, or 55.​1% of holdings, in September, after increasing $​23.​1 billion in August, $​88.​7 billion in July, $​128.​6 billion in June and $​52.​5 billion in May. Treasury securities fell $​84.​8 billion (-​6.​3%) to $​1.​253 trillion, or 25.​4% of holdings, after decreasing $​82.​6 billion in August, $​33.​2 billion in July, $​72.​5 billion in June and $​145.​4 billion in May. Government Agency Debt was up $​35.​9 billion, or 8.​1%, to $​478.​0 billion, or 9.​7% of holdings, after increasing $​11.​3 billion in August and $​24.​5 billion in July. Agencies decreased $​14.​6 billion in June, but increased $​35.​1 billion in May. Repo, Treasuries and Agency holdings now total $​4.​448 trillion, representing a massive 90.​2% of all taxable holdings.

Money fund holdings of CP and CDs fell in September. Commercial Paper (​CP) decreased $​7.​8 billion (-​3.​2%) to $​235.​6 billion, or 4.​8% of holdings, after increasing $​15.​4 billion in August and $​15.​3 billion in July. CP decreased $​17.​3 billion in June but increased $​5.​8 billion in May. Certificates of Deposit (​CDs) decreased $​1.​6 billion (-​1.​2%) to $​133.​8 billion, or 2.​7% of taxable assets, after increasing $​13.​4 billion in August and $​3.​6 billion in July. CDs decreased $​1.​0 billion in June but increased $​3.​4 billion in May. Other holdings, primarily Time Deposits, decreased $​1.​1 billion (-​1.​1%) to $​105.​8 billion, or 2.​1% of holdings, after decreasing $​1.​8 billion in August and increasing $​17.​3 billion in July. Other decreased $​21.​1 billion in June and $​4.​7 billion in May. VRDNs rose to $​10.​4 billion, or 0.​2% of assets. (​Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately today/​Thursday around noon.)

Prime money fund assets tracked by Crane Data jumped to $​954 billion, or 19.​3% of taxable money funds' $​4.​934 trillion total. Among Prime money funds, CDs represent 14.​0% (​down from 14.​4% a month ago), while Commercial Paper accounted for 24.​6% (​down from 26.​0% in August). The CP totals are comprised of: Financial Company CP, which makes up 16.​5% of total holdings, Asset-​Backed CP, which accounts for 3.​8%, and Non-​Financial Company CP, which makes up 4.​3%. Prime funds also hold 6.​2% in US Govt Agency Debt, 4.​1% in US Treasury Debt, 32.​7% in US Treasury Repo, 0.​3% in Other Instruments, 8.​1% in Non-​Negotiable Time Deposits, 4.​8% in Other Repo, 2.​7% in US Government Agency Repo and 0.​6% in VRDNs.

Government money fund portfolios totaled $​2.​740 trillion (​55.​5% of all MMF assets), down from $​2.​769 trillion in August, while Treasury money fund assets totaled another $​1.​239 trillion (​25.​1%), up from 1.​210 trillion the prior month. Government money fund portfolios were made up of 15.​3% US Govt Agency Debt, 8.​4% US Government Agency Repo, 17.​2% US Treasury Debt, 58.​5% in US Treasury Repo, 0.​3% in Other Instruments. Treasury money funds were comprised of 60.​0% US Treasury Debt and 38.​8% in US Treasury Repo. Government and Treasury funds combined now total $​3.​979 trillion, or 80.​6% of all taxable money fund assets.

European-​affiliated holdings (​including repo) decreased by $​80.​6 billion in September to $​347.​4 billion; their share of holdings dropped to 7.​0% from last month'​s 8.​7%. Eurozone-​affiliated holdings decreased to $​242.​1 billion from last month'​s $​293.​3 billion; they account for 4.​9% of overall taxable money fund holdings. Asia & Pacific related holdings dropped to $​175.​9 billion (​3.​6% of the total) from last month'​s $​191.​3 billion. Americas related holdings rose to $​4.​405 trillion from last month'​s $​4.​294 trillion, and now represent 89.​3% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (​up $​78.​0 billion, or 3.​4%, to $​2.​395 trillion, or 48.​5% of assets); US Government Agency Repurchase Agreements (​down $​15.​5 billion, or -​5.​7%, to $​256.​0 billion, or 5.​2% of total holdings), and Other Repurchase Agreements (​up $​11.​9 billion, or 22.​2%, from last month to $​65.​7 billion, or 1.​3% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (​down $​2.​7 billion to $​157.​9 billion, or 3.​2% of assets), Asset Backed Commercial Paper (​up $​1.​1 billion to $​36.​4 billion, or 0.​7%), and Non-​Financial Company Commercial Paper (​down $​6.​2 billion to $​41.​4 billion, or 0.​8%).

The 20 largest Issuers to taxable money market funds as of Sept. 30, 2022, include: the Federal Reserve Bank of New York ($​2.​208T, 44.​8%), the US Treasury ($​1.​253T, 25.​4%), Federal Home Loan Bank ($​372.​6B, 7.​6%), Federal Farm Credit Bank ($​96.​4B, 2.​0%), RBC ($​63.​4B, 1.​3%), Fixed Income Clearing Corp ($​63.​4B, 1.​3%), BNP Paribas ($​54.​2B, 1.​1%), JP Morgan ($​51.​6B, 1.​0%), Sumitomo Mitsui Banking Corp ($​43.​5B, 0.​9%), Citi ($​41.​4B, 0.​8%), Mitsubishi UFJ Financial Group Inc <​b:>`​_ ($​36.​5B, 0.​7%), Bank of America ($​30.​4B, 0.​6%), Toronto-​Dominion Bank ($​29.​6B, 0.​6%), Canadian Imperial Bank of Commerce ($​25.​7B, 0.​5%), Barclays ($​23.​9B, 0.​5%), Mizuho Corporate Bank Ltd ($​23.​7B, 0.​5%), Bank of Montreal ($​23.​0B, 0.​5%), ING Bank ($​22.​9B, 0.​5%), Goldman Sachs ($​22.​8B, 0.​5%) and Nomura ($​21.​2B, 0.​4%).

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 ($​2.​208T, 81.​3%), Fixed Income Clearing Corp ($​63.​4B, 2.​3%), BNP Paribas ($​47.​0B, 1.​7%), JP Morgan ($​44.​9B, 1.​7%), RBC ($​41.​2B, 1.​5%), Sumitomo Mitsui Banking Corp ($​28.​8B, 1.​1%), Bank of America ($​27.​3B, 1.​0%), Citi ($​24.​6B, 0.​9%), Nomura ($​21.​2B, 0.​8%) and Goldman Sachs ($​21.​1B, 0.​8%). The largest users of the $​2.​208 trillion in Fed RRP include: Goldman Sachs FS Govt ($​135.​0B), Fidelity Govt Money Market ($​132.​4B), JPMorgan US Govt MM ($​130.​3B), Vanguard Federal Money Mkt Fund ($​126.​6B), Fidelity Govt Cash Reserves ($​118.​6B), Morgan Stanley Inst Liq Govt ($​85.​7B), BlackRock Lq FedFund ($​81.​5B), Federated Hermes Govt Obl ($​79.​5B), State Street Inst US Govt ($​71.​7B) and American Funds Central Cash ($​71.​1B).

The 10 largest issuers of "​credit" -- CDs, CP and Other securities (​including Time Deposits and Notes) combined -- include: RBC ($​22.​2B, 5.​4%), Mitsubishi UFJ Financial Group Inc ( $​19.​2B, 4.​7%), Toronto-​Dominion Bank ($​18.​2B, 4.​5%), Mizuho Corporate Bank Ltd ($​18.​0B, 4.​4%), Skandinaviska Enskilda Banken AB ($​17.​0B, 4.​2%), Citi ($​16.​8B, 4.​1%), Sumitomo Mitsui Banking Corp ($​14.​7B, 3.​6%), Barclays ($​14.​7B, 3.​6%), ING Bank ($​13.​4B, 3.​3%) and Bank of Nova Scotia ($​12.​3B, 3.​0%).

The 10 largest CD issuers include: Mitsubishi UFJ Financial Group Inc ($​13.​9B, 10.​4%), Sumitomo Mitsui Banking Corp ($​12.​5B, 9.​3%), Citi ($​12.​3B, 9.​2%), Toronto-​Dominion Bank ($​8.​4B, 6.​3%), Canadian Imperial Bank of Commerce ($​7.​9B, 5.​9%), Mizuho Corporate Bank Ltd ($​7.​5B, 5.​6%), Bank of Nova Scotia ($​7.​0B, 5.​2%), Sumitomo Mitsui Trust Bank ($​6.​5B, 4.​8%), Credit Agricole ($​5.​7B, 4.​3%) and Barclays ($​4.​6B, 3.​4%).

The 10 largest CP issuers (​we include affiliated ABCP programs) include: RBC ($​13.​7B, 6.​8%), Toronto-​Dominion Bank ($​9.​1B, 4.​6%), National Australia Bank Ltd ($​8.​3B, 4.​1%), Bank of Montreal ($​6.​6B, 3.​3%), JP Morgan ($​6.​6B, 3.​3%), BNP Paribas ($​6.​5B, 3.​3%), BayernLB ($​6.​2B, 3.​1%), Australia & New Zealand Banking Group Ltd ($​6.​1B, 3.​1%), Barclays ($​5.​9B, 3.​0%) and Svenska Handelsbanken ($​5.​8B, 2.​9%).

The largest increases among Issuers include: Federal Reserve Bank of New York (​up $​147.​6B to $​2.​208T), Federal Home Loan Bank (​up $​37.​3B to $​372.​6B), Fixed Income Clearing Corp (​up $​10.​7B to $​63.​4B), ING Bank (​up $​5.​8B to $​22.​9B), Citi (​up $​4.​1B to $​41.​4B), Canadian Imperial Bank of Commerce (​up $​3.​5B to $​25.​7B), JP Morgan (​up $​2.​5B to $​51.​6B), Landesbank Hessen-​Thueringen Girozentrale (​up $​1.​4B to $​5.​0B), National Australia Bank Ltd (​up $​1.​3B to $​9.​7B) and Federal Farm Credit Bank (​up $​1.​1B to $​96.​4B).

The largest decreases among Issuers of money market securities (​including Repo) in September were shown by: the US Treasury (​down $​85.​7B to $​1.​253T), BNP Paribas (​down $​27.​1B to $​54.​2B), Barclays (​down $​16.​7B to $​23.​9B), RBC (​down $​12.​7B to $​63.​4B), Credit Agricole (​down $​12.​3B to $​21.​0B), Societe Generale (​down $​8.​5B to $​14.​2B), Natixis (​down $​2.​8B to $​11.​9B), Mitsubishi UFJ Financial Group Inc (​down $​2.​7B to $​36.​5B), Bank of America (​down $​2.​5B to $​30.​4B) and Sumitomo Mitsui Banking Corp (​down $​2.​1B to $​43.​5B).

The United States remained the largest segment of country-​affiliations; it represents 85.​7% of holdings, or $​4.​230 trillion. Canada (​3.​6%, $​175.​6B) was in second place, while Japan (​3.​2%, $​158.​5B) was No. 3. France (​2.​3%, $​113.​9B) occupied fourth place. The United Kingdom (​1.​1%, $​52.​2B) remained in fifth place. Netherlands (​1.​0%, $​47.​3B) was in sixth place, followed by Sweden (​0.​8%, $​38.​2B) Germany (​0.​7%, $​33.​9B), Australia (​0.​6%, $​31.​5B) and Spain (​0.​3%, $​14.​4B). (​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 Sept. 30, 2022, Taxable money funds held 69.​5% (​up from 66.​6%) of their assets in securities maturing Overnight, and another 6.​4% maturing in 2-​7 days (​up from 6.​2%). Thus, 75.​9% in total matures in 1-​7 days. Another 5.​9% matures in 8-​30 days, while 8.​4% matures in 31-​60 days. Note that over three-​quarters, or 90.​3% 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 4.​6% of taxable securities, while 3.​8% matures in 91-​180 days, and just 1.​4% matures beyond 181 days. (​Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)

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Crane Data'​s latest monthly Money Fund Portfolio Holdings statistics will be sent out Wednesday, and we'​ll be writing our regular monthly update on the new Sept. 30 data for Thursday'​s News. But we also uploaded a separate and broader Portfolio Holdings data set based on the SEC'​s Form N-​MFP filings on Tuesday. (​We continue to merge the two series, and the N-​MFP version is now available via our Holding file listings to Money Fund Wisdom subscribers.) Our new N-​MFP summary, with data as of Sept. 30, includes holdings information from 998 money funds (​up 1 from last month), representing assets of $​5.​090 trillion (​up from $​5.​087 trillion). Prime MMFs now total $​970.​9 billion, or 19.​1% of the total. We review the new N-​MFP data, and we also look at our revised MMF expense data, which shows charged expenses inching lower and money fund revenues dipping to a $​13.​2 trillion annualized rate in September.

Our latest Form N-​MFP Summary for All Funds taxable and tax-​exempt) shows Repurchase Agreement (​Repo) holdings in money market funds increased to $​2.​743 trillion (​up from $​2.​669 trillion), or 53.​9% of all assets. Treasury holdings totaled $​1.​263 trillion (​down from $​1.​350 trillion), or 24.​8% of all holdings, and Government Agency securities totaled $​492.​2 billion (​up from $​458.​0 billion), or 9.​7%. Holdings of Treasuries, Government agencies and Repo (​almost all of which is backed by Treasuries and agencies) combined total $​4.​498 trillion, or a massive 88.​4% of all holdings.

Commercial paper (​CP) totals $​245.​1 billion (​down from $​252.​7 billion), or 4.​8% of all holdings, and the Other category (​primarily Time Deposits) totals $​139.​0 billion (​down from $​146.​6 billion), or 2.​7%. Certificates of Deposit (​CDs) total $​134.​0 billion (​down from $​135.​7 billion), 2.​6%, and VRDNs account for $​73.​4 billion (​down from $​75.​6 billion last month), or 1.​4% of money fund securities.

Broken out into the SEC'​s more detailed categories, the CP totals were comprised of: $​159.​0 billion, or 3.​1%, in Financial Company Commercial Paper; $​37.​1 billion or 0.​7%, in Asset Backed Commercial Paper; and, $​49.​0 billion, or 1.​0%, in Non-​Financial Company Commercial Paper. The Repo totals were made up of: U.​S. Treasury Repo ($​2.​435 trillion, or 47.​9%), U.​S. Govt Agency Repo ($​261.​7B, or 5.​1%) and Other Repo ($​45.​8B, or 0.​9%).

The N-​MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $​239.​8 billion (​down from $​247.​9 billion), or 24.​7%; Repo holdings of $​386.​3 billion (​up from $​343.​7 billion), or 39.​8%; Treasury holdings of $​44.​1 billion (​down from $​53.​9 billion), or 4.​5%; CD holdings of $​134.​0 billion (​down from $​135.​7 billion), or 13.​8%; Other (​primarily Time Deposits) holdings of $​97.​5 billion (​down from $​106.​2 billion), or 10.​0%; Government Agency holdings of $​62.​6 billion (​down from $​62.​7 billion), or 6.​5% and VRDN holdings of $​6.​6 billion (​up from $​6.​2 billion), or 0.​7%.

The SEC'​s more detailed categories show CP in Prime MMFs made up of: $​159.​0 billion (​down from $​161.​4 billion), or 16.​4%, in Financial Company Commercial Paper; $​37.​1 billion (​up from $​36.​1 billion), or 3.​8%, in Asset Backed Commercial Paper; and $​43.​7 billion (​down from $​50.​3 billion), or 4.​5%, in Non-​Financial Company Commercial Paper. The Repo totals include: U.​S. Treasury Repo ($​314.​8 billion, or 32.​4%), U.​S. Govt Agency Repo ($​25.​7 billion, or 2.​6%), and Other Repo ($​45.​8 billion, or 4.​7%).

In related news, money fund charged expense ratios (​Exp%) inched higher in September to 0.​39% from 0.​38% the prior month (​after jumping earlier this year from 0.​08% at the start of 2022). Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.​26% and 0.​39%, respectively, as of Sept. 30, 2022. 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 Tuesday 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.

Our Crane 100 Money Fund Index, a simple average of the 100 largest taxable money funds, shows an average charged expense ratio of 0.​26%, unchanged from last month'​s level (​but 18 bps higher than 12/​31/​21'​s 0.​08%). The average is slightly below the level (​0.​27%) as it was on Dec. 31, 2019, so we estimate that funds are now charging normal expenses (​but starting to waive some fees for competitive purposes). The Crane Money Fund Average, a simple average of all taxable MMFs, showed a charged expense ratio of 0.​39% as of Sept. 30, 2022, 1 bp higher than the month prior and now slightly below the 0.​40% at year-​end 2019.

Prime Inst MFs expense ratios (​annualized) average 0.​32% (​unchanged from last month), Government Inst MFs expenses average 0.​28% (​unchanged from previous month), Treasury Inst MFs expenses average 0.​31% (​unchanged from last month). Treasury Retail MFs expenses currently sit at 0.​52%, (​unchanged from last month), Government Retail MFs expenses yield 0.​53% (​up 1 bp from last month). Prime Retail MF expenses averaged 0.​50% (​unchanged from the previous month). Tax-​exempt expenses were unchanged at 0.​41% on average.

Gross 7-​day yields rose again during the month ended Sept. 30, 2022 (​September saw a 75 bps hike). (​Yields should continue inching higher in October and should jump again in November if, as expected, the Fed hikes again.) The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (​currently 743), shows a 7-​day gross yield of 2.​93%, up 63 bps from the prior month. The Crane Money Fund Average has passed the 1.​72% at the end of 2019 and up from 0.​15% the end of 2020 and 0.​09% at the end of 2021. Our Crane 100'​s 7-​day gross yield was up 63 bps, ending the month at 2.​91%.

According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is $​13.​171 billion (​as of 9/​30/​22). Our estimated annualized revenue totals decreased from $​13.​297B last month and from $​14.​860B two months ago. Revenue levels are still more than four times larger than May'​s record low $​2.​927B level. Charged expenses and gross yields are driven by a number of variables, but revenues should resume their upwards trend in coming months as the MMFs start seeing substantial inflows from bank deposits.

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Crane Data'​s latest monthly Money Fund Market Share rankings show assets were mixed among the largest U.​S. money fund complexes in September. Money market fund assets increased $​1.​1 billion, or 0.​0%, last month to $​5.​042 trillion. Assets increased by $​55.​1 billion, or 1.​1%, over the past 3 months, and they'​ve increased by $​58.​5 billion, or 1.​2%, over the past 12 months. The largest increases among the 25 largest managers last month were seen by Schwab, Goldman Sachs, UBS, Vanguard and First American, which grew assets by $​17.​6 billion, $​13.​3B, $​3.​3B, $​2.​8B and $​2.​1B, respectively. The largest declines in September were seen by Dreyfus, HSBC, Northern, JP Morgan and BlackRock, which decreased by $​11.​9 billion, $​10.​1B, $​6.​4B, $​6.​0B and $​5.​6B, respectively. Our domestic U.​S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals, and look at money fund yields, which jumped again in September, below.

Over the past year through Sept. 30, 2022, American Funds (​up $​73.​9B, or 53.​8%), Schwab (​up $​66.​1B, or 45.​6%), SSGA (​up $​47.​3B, or 33.​4%), Invesco (​up $​26.​4B, or 29.​9%) and Goldman Sachs (​up $​24.​5B, or 6.​7%) were the largest gainers. Schwab, DWS, Goldman Sachs, SSGA and American Funds had the largest asset increases over the past 3 months, rising by $​51.​8B, $​21.​56B, $​17.​5B, $​17.​3B and $​13.​4B, respectively. The largest decliners over 12 months were seen by: BlackRock (​down $​55.​5B), JP Morgan (​down $​43.​8B), Allspring (​down $​41.​1B), Northern (​down $​39.​7B) and Morgan Stanley (​down $​26.​0B). The largest decliners over 3 months included: Morgan Stanley (​down $​39.​5B), BlackRock (​down $​30.​8B), JPMorgan (​down $​28.​8B), Northern (​down $​24.​3B) and Western (​down $​3.​9B).

Our latest domestic U.​S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $​920.​2 billion, or 18.​2% of all assets. Fidelity was down $​291M in September, up $​6.​5 billion over 3 mos., and up $​21.​3B over 12 months. BlackRock ranked second with $​471.​9 billion, or 9.​4% market share (​down $​5.​6B, down $​30.​8B and down $​55.​5B for the past 1-​month, 3-​mos. and 12-​mos., respectively). Vanguard ranked in third place with $​459.​6 billion, or 9.​1% of assets (​up $​2.​8B, up $​11.​2B and down $​6.​2B). JPMorgan ranked fourth with $​414.​9 billion, or 8.​2% market share (​down $​6.​0B, down $​28.​8B and down $​43.​8B), while Goldman Sachs was the fifth largest MMF manager with $​392.​7 billion, or 7.​8% of assets (​up $​13.​3B, up $​17.​5B and up $​24.​5B for the past 1-​month, 3-​mos. and 12-​mos.).

Federated Hermes was in sixth place with $​340.​3 billion, or 6.​7% (​up $​1.​7B, up $​7.​0B and up $​13.​3B), while Morgan Stanley was in seventh place with $​261.​8 billion, or 5.​2% of assets (​down $​441M, down $​39.​5B and down $​26.​0B). Dreyfus ($​234.​3B, or 4.​6%) was in eighth place (​down $​11.​9B, down $​580M and up $​3.​6B), followed by American Funds ($​211.​3B, or 4.​2%; unchanged, up $​13.​4B and up $​73.​9B). Schwab was in 10th place ($​211.​1B, or 4.​2%; up $​17.​6B, up $​51.​8B and up $​66.​1B).

The 11th through 20th-​largest U.​S. money fund managers (​in order) include: SSGA ($​188.​9B, or 3.​7%), Allspring (​formerly Wells Fargo) ($​153.​6B, or 3.​0%), Northern ($​144.​0B, or 2.​9%), First American ($​118.​7B, or 2.​4%), Invesco ($​115.​0B, or 2.​3%), T. Rowe Price ($​55.​1B, or 1.​1%), HSBC ($​53.​7B, or 1.​1%), UBS ($​53.​3B, or 1.​1%), DWS ($​38.​1B, or 0.​8%) and Western ($​23.​0B, or 0.​5%). Crane Data currently tracks 61 U.​S. MMF managers, unchanged from 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 JPMorgan moves up to the No. 3 spot, Goldman moves up to the No. 4 spot and, Vanguard moves down to the No. 5 spot, And SSGA moves up to the No. 9 spot while American Funds drops down to the No. 10 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 ($​930.​7 billion), BlackRock ($​669.​3B), JP Morgan ($​580.​7B), Goldman Sachs ($​525.​6B) and Vanguard ($​459.​6B). Federated Hermes ($​350.​3B) was in sixth, Morgan Stanley ($​323.​6B) was seventh, followed by Dreyfus/​BNY Mellon ($​252.​2B), SSGA ($​220.​8B) and American Funds ($​211.​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 October issue of our Money Fund Intelligence and MFI XLS, with data as of 9/​30/​22, shows that yields jumped again in September for the Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (​currently 743), rose to 2.​42% (​up 58 bps) for the 7-​Day Yield (​annualized, net) Average, the 30-​Day Yield increased to 2.​10% (​up 34 bps). The MFA'​s Gross 7-​Day Yield rose to 2.​79% (​up 54 bps), and the Gross 30-​Day Yield also moved up to 2.​48% (​up 33 bps). (Gross yields will be revised Tuesday afternoon, though, once we download the SEC'​s Form N-​MFP data for 9/​30/​22.)

Our Crane 100 Money Fund Index shows an average 7-​Day (​Net) Yield of 2.​63% (​up 63 bps) and an average 30-​Day Yield at 2.​26% (​up 31 bps). The Crane 100 shows a Gross 7-​Day Yield of 2.​86% (​up 57 bps), and a Gross 30-​Day Yield of 2.​51% (​up 27 bps). Our Prime Institutional MF Index (​7-​day) yielded 2.​65% (​up 58 bps) as of September 30. The Crane Govt Inst Index was at 2.​44% (​up 57 bps) and the Treasury Inst Index was at 2.​42% (​up 49 bps). Thus, the spread between Prime funds and Treasury funds is 23 basis points, and the spread between Prime funds and Govt funds is 21 basis points. The Crane Prime Retail Index yielded 2.​58% (​up 62 bps), while the Govt Retail Index was 2.​18% (​up 62 bps), the Treasury Retail Index was 2.​32% (​up 64 bps from the month prior). The Crane Tax Exempt MF Index yielded 1.​71% (​up 53 bps) as of September 30.

Gross 7-​Day Yields for these indexes to end September were: Prime Inst 2.​95% (​up 54 bps), Govt Inst 2.​71% (​up 55 bps), Treasury Inst 2.​72% (​up 47 bps), Prime Retail 3.​05% (​up 54 bps), Govt Retail 2.​69% (​up 58 bps) and Treasury Retail 2.​78% (​up 55 bps). The Crane Tax Exempt Index jumped to 1.​57% (​up 28 bps). The Crane 100 MF Index returned on average 0.​18% over 1-​month, 0.​46% over 3-​months, 0.​59% YTD, 0.​59% over the past 1-​year, 0.​46% over 3-​years (​annualized), 0.​98% over 5-​years, and 0.​57% over 10-​years.

The total number of funds, including taxable and tax-​exempt, dropped by 1 in September to 887. There are currently 743 taxable funds, up 3 from the previous month, and 143 tax-​exempt money funds (​down 3 from last month). (Contact us if you'​d like to see our latest MFI XLS, Crane Indexes or Market Share report.)

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The October issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Third Time'​s a Charm: Money Funds Turn 50 and Break 3.​0%," which discusses money funds 50th birthday and yields at 3.​0%; "European Money Fund Symposium: Positive in Paris," which reviews our latest conference on "​offshore" money funds; and, "Worldwide MF Assets Fall in Q2'​22, Led by US, Ireland, Lux," which quotes from ICI'​s latest global money fund statistics. We also sent out our MFI XLS spreadsheet Friday a.​m., and we'​ve updated our Money Fund Wisdom database with 9/​30/​22 data. Our October Money Fund Portfolio Holdings are scheduled to ship on Wednesday, Oct. 12, and our October Bond Fund Intelligence is scheduled to go out on Monday, Oct. 17. (Note: Our MFI, MFI XLS and Crane Index products are all available to subscribers via our Content center. Note too: Crane Data and money market funds will be closed Monday for the Columbus Day Holiday.)

MFI'​s "Third Time'​s a Charm" article says, "The Federal Reserve raised short-​term interest rates by 75 basis points for the third time in a row, to a range of 3.​0% to 3.​25%, its highest level since 2008. Money fund yields, which of course follow the Fed, are about to hit 3.​0% on average, while the top-​yielding funds have already broken above this level. Finally, money market mutual funds celebrate their 50th birthday this month ... for the third time."

It continues, "While we mentioned both one year ago and two years ago that money market funds marked their 50th birthday, one could argue that 1972 was the real live date of Reserve Primary Fund, the first money fund. (​It filed in October 1970 and went live in October 1971, but it didn'​t get approval and investors into the fund until October 1972.)"

Our "European" piece goes, "​Crane Data hosted its European Money Fund Symposium in Paris last week, and the event focusing on money funds domiciled outside the U.​S. attracted a record 166 attendees. Though it was rainy in Paris, spirits were high as rising rates and positive euro yields (​for the first time since 2014) out-​weighed concerns over potential regulatory changes and sterling gyrations."

It also says, "​Our Day 2 agenda began with 'ICI Global & EFAMA Talk Regulatory Issues,' which featured updates from ICI Global'​s Michael Pedroni and EFAMA'​s Federico Cupelli. Pedroni explains, 'What I'​ll do here is give a quick lay of the land of what we see in the pipeline. My observations are really structured around two key considerations.... One is swing pricing.... We don'​t particularly like swing pricing, and I’​ll talk about that. But there is quite a bit of talk among regulatory authorities about implementing swing pricing for money funds. Then the second area is the elimination of the tie between the liquidity thresholds and fees and gates. And just to give a sneak preview, we kind of like that. So those are the two policy issues.'"

Our "Worldwide" update states, "​The Investment Company Institute'​s latest 'Worldwide Regulated Open-​Fund Assets and Flows, Second Quarter 2022' shows that money fund assets globally fell by $​153.​5 billion, or -​1.​8%, in Q2'​22 to $​8.​482 trillion. The decreases were led by drops in money funds in the U.​S., Ireland and Luxembourg. Meanwhile, money funds in China and Australia increased. MMF assets worldwide decreased by $​83.​0 billion, or -​1.​0%, in the 12 months through 6/​30/​22, and money funds in the U.​S. represent 53.​5% of worldwide assets. We review the latest Worldwide MMF totals, below."

MFI writes, "​ICI'​s release says, 'Worldwide regulated open-​end fund assets decreased 11.​5% to $​59.​91 trillion at the end of the second quarter of 2022, excluding funds of funds. Worldwide net cash outflow to all funds was $​130 billion in the second quarter, compared with $​79 billion of net inflows in the first quarter of 2022. The Investment Company Institute compiles worldwide regulated open-​end fund statistics on behalf of the International Investment Funds Association (​IIFA), the organization of national fund associations. The collection for [​Q2'​22] contains statistics from 46 jurisdictions.'"

MFI also includes the News brief, "WSJ'​s Zweig Says Cash Is Not Trash. The Wall Street Journal writes 'Three Ways You Can Cash In on Cash.' Columnist Jason Zweig tells us, 'Cash isn'​t trash anymore. With stocks -- and just about every other asset -- taking a beating this year, even the most aggressive investors can suddenly see the virtue of keeping some money liquid and safe from market turmoil. And, at long last, your cash can earn income you don'​t need a microscope to detect.'"

Another News brief, "Money Fund Charged Expense Ratios (​Exp%) Inched Lower," says, "Money Fund Charged Expense Ratios (​Exp%) Inched Lower in August to 0.​38% from 0.​41% the prior month (​after jumping earlier this year from 0.​08% at the start of 2022). Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.​26% and 0.​38%, respectively, as of Aug. 31, 2022. 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. (​We'​ll revise our latest monthly MFI XLS spreadsheet and historical craneindexes.​xlsx averages file to reflect the latest expenses, gross yields, portfolio composition and maturity breakout on Tuesday.)"

Also, a sidebar, "SSGA to Liquidate ESG MMF," states, "​A Prospectus Supplement filing for State Street ESG Liquid Reserves Fund states, 'The Trust'​s Board of Trustees has approved a Plan of Liquidation and Termination of Series with respect to the Fund, pursuant to which the Fund is expected to be liquidated and terminated on or about October 28, 2022. The Plan authorizes the Fund and its investment adviser, SSGA Funds Management, Inc., to engage in such transactions as may be appropriate for the Fund'​s liquidation and dissolution."(​For more on ESG & Social Money Market Funds, see our May 12 Crane Data News, and hotlinks at the end of that story, "UBS AM Explains Sustainability in Liquidity; Federated Adds SGD Shares.")

Another sidebar, "French MMFs Hit by Outflows," says, "Moody'​s Investors Service published 'French MMFs' H1 asset contraction exceeds that of European peers,' which explains, 'French money market funds (​MMF) lost about 12% of their assets under management (​AUM) in the first half of 2022, more than their European peers. This reflects investor withdrawals in response to rising inflation and to satisfy margin calls triggered by Ukraine-​related ... turbulence.'"

Our October MFI XLS, with September 30 data, shows total assets increased $​1.​7 billion to $​5.​043 trillion, after increasing $​2.​3 billion in August, $​26.​0 billion in July and $​31.​9 billion in June, but decreasing $​10.​7 billion in May and $​74.​3 billion in April. MMFs increased $​24.​1 billion in March, decreased $​34.​6 billion in February and decreased $​128.​1 billion in January. Assets increased $​104.​6 billion in December, $​49.​7 billion in November and $​20.​5 billion October. Our broad Crane Money Fund Average 7-​Day Yield was up 51 bps to 2.​42%, and our Crane 100 Money Fund Index (​the 100 largest taxable funds) was up 61 bps to 2.​63% in September.

On a Gross Yield Basis (​7-​Day) (​before expenses are taken out), the Crane MFA and the Crane 100 both were both higher at 2.​79% and 2.​86%, respectively. Charged Expenses averaged 0.​38% and 0.​26% for the Crane MFA and the Crane 100. (​We'​ll revise expenses on Tuesday once we upload the SEC'​s Form N-​MFP data for 9/​30/​22.) The average WAM (​weighted average maturity) for the Crane MFA was a record low 18 days (​down 1 day from previous month) while the Crane 100 WAM decreased 2 days to 17 days. (​See our Crane Index or craneindexes.​xlsx history file for more on our averages.)

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As we wrote about earlier this week, Crane Data recently hosted its 8th annual European Money Fund Symposium in Paris, France, which featured two days of discussions on offshore money funds denominated in USD, EUR and GBP. Today, we quote from the Senior Portfolio Manager Perspectives panel, which featured Federated Hermes' Deborah Cunningham, BlackRock'​s Geeta Sharma and HSBC Asset Management'​s Florent Vassord. Asked about supply, Cunningham tells us, "You'​ve seen [​the CP] sector growing by double digits, especially since March when the Fed began raising rates. CDs are another popular investment choice, and then ultimately across both sectors, any kind of floating rate paper that you can buy. Whether it'​s bill floaters, agency floaters, any type of CP floaters, bank floaters, MTNs that are floating rate and issuance, those in a rising rate environment are extremely beneficial." (Note: Thanks again to those who attended and supported European MFS! Mark your calendars for next year'​s event in Edinburgh, Scotland, Sept. 25-​26, 2023.)

She explains, "We'​re missing LIBOR as a reference rate for those floating rate securities. Almost the whole government floating rate market has [​moved to] SOFR. Even on the prime side, you'​re probably looking at, at least 70% of the issuance coming through SOFR. But it does not accomplish the same thing as a LIBOR floater used to. With LIBOR you had credit implications associated with it, in addition to a curve.... SOFR is an overnight collateralized riskless rate. It just doesn'​t give you the same thing. Nonetheless, it is capturing interest rates as they'​re going up without constant transactions in overnight securities. So, floaters are still a popular choice."

On the extensive use of time deposits in Europe, Cunningham says, "It'​s mostly an overnight alternative. There'​s not as large of a repurchase agreement market in Europe as there is in the U.​S. and there'​s not as much of a need. The Government funds in Europe, whether it'​s dollar sterling or euro denominated, are much smaller than the Prime funds in those sectors. And as such, time deposits really meet the overnight demand. You need to have more from a diversification perspective, more counterparties in that regard. But there seem to be plenty of those in in Europe as well."

BlackRock'​s Sharma comments, "Standard money funds are trying to stay short in this environment. The alternative to move into lower credit space has been attractive investment strategy, preferring short-​term carry over duration, really. So that'​s certainly something that we see, a slight difference in variation of supply-​demand.... But this is obviously still a very fragile sort of market environment. There'​s a lot of uncertainty.... In that environment, you want to be compensated for rate risk. You want to be compensated for credit risk. And I think that markets are still jostling with the rate view at the moment. But, as an investor, you have to be mindful of everything."

She continues, "In terms of the rate view, I think it'​s evident that the central banks are focused on inflation first and foremost. I can'​t see that changing any time soon. There'​s a lot of inflation that'​s really out of their control. Without slowing economies, it'​s not really going to be something they can address. So, I think we do run the risk of seeing that play out in that way. But I think the markets might be a little bit ambitious expecting at least the US Federal Reserve to cut rates soon after getting them to a multi-​decade high.... It'​s likely that we'​re going to see a slightly more elevated inflation backdrop."

Asked about the differences between U.​S. domestic money funds versus Ireland domiciled offshore funds, Sharma responds, "I think, largely, they'​re pretty much the same. They should be similar in strategy. But there are variations. One thing that sometimes I think issuers may be less aware of or less focused on is that the investor base is different. That'​s important because that means sensitivity to exposures can be different at times. We'​ve seen that prevail over the number of events that we'​ve experienced in the last few decades. So that can mean that the underlying sort of composition of an offshore fund versus an onshore fund could be slightly different with the exposure, particularly outside of the U.​S. Definitely, in the offshore space [​we] are more heavily weighted or biased towards some of the offshore investment offerings. So there'​s that difference, but often they are quite similar. It'​s the same banks if you'​re buying banks, corporates also issuing those markets."

She adds, "One thing I'​ve started to observe, particularly in this current cycle ... is that the construct in the U.​S. funds, onshore with the variable NAV setup, can lead to slight differences in portfolio approaches because of the sensitivities. Obviously with the dominance of the government and Treasury market in the U.​S., I think there'​s a huge comparison between funds, yield spreads, etc. That can sometimes be something that'​s a unique consideration for an onshore fund versus an offshore fund that may not have the same dynamic because the government funds based in the offshore markets is still quite small."

Cunningham says, "From an investor base standpoint, I oftentimes tell people, if you read the prospectuses for both products, they look almost identical. But they may be different simply because of the investor base and the concentration or diversification of those investor bases.... What that allows that portfolio to then be comfortable with from an investment perspective. While the RRP is not available for offshore products, it nonetheless benefits everybody, whether you'​re an eligible counterparty or not. We have 15 different products that can transact repo with the Fed'​s facility and 12 of our products that can'​t. But they benefit from the capability of those products that can. So, I think despite the Fed'​s very specific requirements as to who can be one of their counterparties, it has broader tentacles that spread beyond those."

Discussing Euro MMFs and supply, HSBC'​s Vassord tells us, "I'​d say it'​s mainly a market which is driven by a banking issuance and to meet requirement in terms of liquidity and liquid assets, both overnight and weekly assets. As in the States we could use both repo and overnight deposits.... Currently, the yield is higher so we prefer at this time to invest into overnight deposits. But we keep an eye on the repo market.... So that'​s a [​factor] that we have to manage until year end and probably also next year."

He states, "We tend also to buy some commercial paper as well. It'​s mainly driven by ECP issued by banks. We operate [​within] some rating constraints. There is not so much corporate debt.... Corporates are more looking to issue longer maturities. So, it'​s hard for us to ... diversify a bit more and ... it'​s hard to find some supply.... But after that, we are also buying some bonds and, in some agencies, as well. So, we'​ve got the full spectrum."

Asked about NAVs, Vassord answers, "Sure, we are watching NAV movements.... But that'​s also something that is interesting with the new regulations. When we are talking about transparency for clients, it'​s important for them to have that kind of data. The clients can compare NAVs.... That'​s some information that your clients have today in the end, which wasn'​t the case few years ago. That'​s also something that the PM'​s have to keep in mind when managing the funds, because at the end, your clients will always compare funds.... And if you [​an outlier] then you could face redemptions in your funds. So that'​s something also that the PM'​s have to manage very carefully. And for me it'​s something positive with the regulation because it provides more information to your clients."

Finally, on ESG and sustainability, Sharma says, "​I think that'​s an area that'​s definitely interesting.... Investors themselves want to somehow incorporate these considerations across the board into their asset allocation. I think it'​s important as money market participants to recognize that and sort of mobilize. As an investor, I think about investment risk. We believe that climate risk is investment risk.... So, with the companies in which we invest, it'​s important that we focus on what they'​re doing and how they are adapting their strategy over time.... I think what we'​re seeing in the money market space is not only the evolution of strategies, which may be some more focused on these considerations and ESG integration more broadly. But also minimizing certain risks. More recently in the last few years, we'​ve started to see issuance that enables money market investors to participate in the mobilization of capital towards projects that are designed to achieve these goals."

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Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (​with data as of Sept. 30) includes Holdings information from 33 money funds (​down 22 from a week ago), which represent $​925.​8 billion (​down from $​1.​498 trillion) of the $​5.​036 trillion (​18.​4%) in total money fund assets tracked by Crane Data. Though some have expressed concerns about Credit Suisse-​related credits, money funds continue to hold the name as of Sept. 30, though the total has been reduced to just $​1.​2 billion. (​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 $​555.​1 billion (​down from $​849.​2 billion a week ago), or 60.​0%; Treasuries totaling $​264.​8 billion (​down from $​453.​4 billion a week ago), or 28.​6%, and Government Agency securities totaling $​62.​8 billion (​down from $​89.​5 billion), or 6.​8%. Commercial Paper (​CP) totaled $​17.​7 billion (​down from a week ago at $​39.​6 billion), or 1.​9%. Certificates of Deposit (​CDs) totaled $​8.​2 billion (​down from $​17.​5 billion a week ago), or 0.​9%. The Other category accounted for $​13.​0 billion or 1.​4%, while VRDNs accounted for $​4.​3 billion, or 0.​5%.

The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $​443.​4 billion (​47.​9%), the US Treasury with $​264.​8 billion (​28.​6% of total holdings), Federal Home Loan Bank with $​30.​5B (​3.​3%), Federal Farm Credit Bank with $​29.​2B (​3.​2%), JP Morgan with $​14.​5B (​1.​6%), RBC with $​9.​8B (​1.​1%), BNP Paribas with $​9.​3B (​1.​0%), Mitsubishi UFJ Financial Group Inc with $​8.​9B (​1.​0%), Nomura with $​7.​8B (​0.​8%) and Fixed Income Clearing Corp with $​6.​1B (​0.​7%).

The Ten Largest Funds tracked in our latest Weekly include: Morgan Stanley Inst Liq Govt ($​140.​2B), Dreyfus Govt Cash Mgmt ($​109.​8B), Allspring Govt MM ($​109.​0B), State Street Inst US Govt ($​107.​5B), First American Govt Oblg ($​79.​4B), Morgan Stanley Inst Liq Treas Sec ($​55.​4B), Dreyfus Treas Sec Cash Mg ($​45.​7B), State Street Inst Treasury Plus ($​41.​4B), Morgan Stanley Inst Liq Treas ($​37.​3B) and Dreyfus Treas Obligations Cash Mgmt ($​37.​0B). (​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.)

In other news, Capital Advisors Group published a paper entitled, "Managing Cash Portfolios in the Tug of War Between Growth and Inflation," which tells us, "With the 75-​basis-​point hike in the Fed funds rate on September 21st, Fed officials now peg their median forecast for the key policy rate in the 4.​25%-​4.​50% range by the end of the year. The resulting rise in bond yields has been so breathtaking that the previous expectation that Fed funds would end the year in the 0.​75%-​1.​00% range now seems both distant and farcical. On the day of the Fed action, the yield on the two-​year Treasury note surpassed 4% for the first time in 15 years."

Author Lance Pan writes, "While cash investors initially welcomed higher yield, rising rates create potential for recent purchases to go under water quickly in market value terms. The message from Fed Chair Jay Powell is clear: the Fed'​s job is not done until inflation recedes to near the targeted 2% level, even at the risk of a recession. And therein lies the quandary: should investors stay with very short instruments such as money market funds or overnight deposits with yields that lag the Fed funds rate? Or should they grab higher yields in longer-​term securities and risk opportunity costs if future rates exceed current projections?"

He asks, "How should fixed income investors, cash investors included, navigate this rising interest rate environment? Especially when other issues such as supply chain bottlenecks, energy and commodities shortages, a housing slump, and rising labor costs continue to challenge credit performance. With a recession looming on the horizon, we thought it would be a good time for a reality check of current conditions and assess how liquidity portfolios may weather the impending storm."

Capital Advisors says, "Portfolios entering this rising rate cycle with bonds purchased at near zero yield and months or years away from maturity may have less appetite to add positions. It is especially the case if the Fed is poised to hike some more, thus leading to more unrealized losses. The presumed safe bet is to leave cash in very short maturity instruments, such as government money market funds and Treasury bills, until there are clear signals of a Fed pivot or pause."

They comment, "Many cash investors have taken this cautious approach which helps explain why money market fund (​MMF) assets, after declining from last December'​s $​4.​71 trillion to $​4.​47 trillion in April 2022, steadily climbed to $​4.​59 trillion as of September 28th. Similarly, the Fed'​s reverse repo (​RRP) facility, where government and prime MMFs account for 80% and 12% of its usage respectively, reached a record balance of $​2.​425 trillion on September 30th, compared to $​1.​579 trillion at the beginning of the year."

The piece states, "The downside to this strategy is the lower yield potential of MMFs and short-​dated Treasury bills than the Fed funds rate, or more appropriately, the RRP rate or comparable overnight government repo rates. Since the Federal Reserve limits its counterparties to a few large banks, MMFs, and government sponsored enterprises, many cash investors use government MMFs as an indirect way of accessing the RRP with the catch that they incur a management fee. Others chase after a limited supply of T-​bills, which push their yield below the RRP rate. Investors capable of conducting overnight repos with broker-​dealers through separately managed accounts (​SMAs) may receive rates near or comparable to RRP, although the process of setting up such arrangements may be lengthy and the expertise of managing a repo book may be out of reach for some investors."

It suggests, "Another strategy to consider is to buy bonds with laddered maturities further out on the yield curve. The maturities can range from overnight to, say, 15-​18 months, when interest rate policy is expected to approach a neutral stance. Securities with longer tenors may receive progressively diminished allocations. This strategy allows a portfolio to earn yield levels above the RRP with a maturity ladder that allows for reinvestment of proceeds as rates rise. It also provides a partial '​lock' of higher rates further up on the curve should the Fed pivot or stop sooner than the market anticipates. This strategy can be especially helpful in a '​hard landing' scenario where the Fed reverses course and cuts rates aggressively. Compared to the traditional '​barbell' MMF strategy, where portfolios are overweighed at both ends of the maturity spectrum, laddered portfolios tend to produce stable liquidity and minimize market value losses."

Capital Advisors Group adds, "A final word of caution concerns institutional Prime MMFs. These funds were popular with institutional liquidity accounts in previous rising rate cycles as they passed on higher returns to investors relatively quickly and provided attractive yield potential with short-​term credit instruments. Investors may be tempted to do the same in this cycle, as the Crane Data money fund universe shows a 20 bps yield differential between the institutional prime and government fund groups as of August 31st. However, the liquidity squeeze in March 2020 exposed the structural vulnerability in prime funds' weekly liquid assets threshold that could trigger large outflows for fear of '​fees and gates.' Industry insiders indicated recently that the Securities and Exchange Commission may finalize its revised ruling on MMF reforms as early as October, and the new rule may include the esoteric requirement of '​swing pricing.' While actual implementation will not commence for at least 12 months, prime funds may experience larger-​than-​usual asset outflows, which may exacerbate NAV fluctuations, an undesirable outcome in a rising rate environment when instruments are often marked down in value from the time of purchase."

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Today, we excerpt from the second half of the "ICI Global & EFAMA Talk Regulatory Issues" session from last week'​s European Money Fund Symposium in Paris, France. (​See Monday'​s News, "ICI Global'​s Pedroni at European MFS: No EU Reforms in Near-​Term; US?") EFAMA'​s Deputy Director for Regulatory Policy Federico Cupelli comments, "In terms of who we represent in the money market fund space, it'​s important to know that our members are very much managing all types of MMFs. We have certainly two camps, the LVNAV and the VNAV, well-​represented within our money market fund task force. I am very happy to say that really on all of these proposals that we will be discussing here today, there is a very good consensus on the way forward. In the past, this has not always been the case, as some in the room remember. However, I think that this time around we are far more aligned, at least on these broad policy topics that have been kicked up since March 2020."

He outlines, "​Here'​s a quick overview of my presentation to you here today. I will just briefly look at what came out of the March 2020 market correction. I'​ll present a quick reform timeline of the key reform proposals, those we like and those we like less. And then what are we to expect in Europe from the European Commission going forward? Coming to the March 2020 selloff, as we'​ve experienced it, I think that we all agree on the fact that the industry has been resilient, the product itself, first and foremost, but also the regulatory framework."

Cupelli continues, "So, I think kudos here to the European co-​legislators and to the Commission initially for having really put out a solid piece of legislation. I think its success has been demonstrated by the fact that all redemptions were met under dire liquidity circumstances. There were no breaches to the regulatory liquidity requirements and consequently for LVNAV and public debt CNAV funds, there was no LMT activation by the managers nor the boards. The LVNAVs specifically were not forced to convert to variable pricing upon reaching their 20-​basis point collars because they did not breach them. Some individual funds got close to it, but they were not beyond."

He tells us, "​Important also is the fact that outflows stabilized almost immediately, returning positive in April 2020. This really goes to show two things: that the correction was short lived and secondly, that investors trust the product, here, especially investors in LVNAV. Hence, I think [​the] bulk of evidence demonstrates that any knee-​jerk reaction to overhaul existing legislation is misplaced, misguided and not well-​informed, quite frankly."

Cupelli asks, "Why fix something that isn'​t broken? Right. And [reforms] should also be proportionate [​focusing on] addressing the key concerns and the key problems, which are really dealer incentives due to banking requirements, limitations on balance sheet usage, specifically when markets get rough. If necessary, they will also need more transparency [​in] creating and developing a euro denominated CP market in Europe, offering players as well as the central banks more transparency around volumes, pricing, issuance, collateral eligibility. I understand there are a number of initiatives there already that need to be capitalized."

He then says, "​Coming to the reform timeline, Michael has already mentioned a number of key stages. It started with IOSCO'​s thematic note that came out in November 2020, where they simply took stock of what happened in March and April and suggested areas for further analysis. Further analysis was done by the FSB through a consultation and then final report, which came out in October of last year. The ESMA consultation came out in March 2021 with many of the FSB options in it. This was followed by the ESRB'​s own recommendations. For those who don'​t know, the ESRB is the European Systemic Risk Board. It is basically the FSB in Europe, a macroprudential supervisor that comes out of the industry with a very bank centric view of the world."

Cupelli comments, "To the ESRB there still are quite a lot of alleged systemic vulnerabilities in the industry. And I'​ll be elaborating on some of the recommendations that were issued in in December 2021. ESMA naturally had to take some of these recommendations into its stride, and so finalized its report, taking the inputs received from the industry in the first part of 2021, combining it with the ESRB'​s own recommendations, putting out a report with an annex. The annex has the opinion as to what has been believes are sensible policy options for the Commission to consider putting forward."

He states, "The Commission by the 21st of July of this year had to deliver a report on the review of the whole MMFR to the European co-​legislators and so consulted with this purpose in mind in April this year. We are expecting to see the release of this report. Its publication should be imminent. We know it'​s finalized [​but] it'​s stuck inside the Commission for the time being.... Notice that I put end of 2022 should be imminent. It can come out next month, no later than November. And then obviously we'​ll see as to the timing of the proposal, how things will develop."

Cupelli also asks, "What are the key reform proposals? If we take what has come from ESMA'​s opinion to combine it within ESRB'​s own policy recommendations, there are some that we fully support and here we were well joined up with ICI. I think there'​s really a global consensus around this point and what needs to be removed is this famous link between breaches to the regulatory liquidity requirements and potential activation of liquidity management tools in Europe, especially with regard to LVNAV."

He describes, "There are options there that we do not like, I think first and foremost, the phasing out of the LVNAV structure. Why remove something that at the end of 2021 accounted for roughly 46% of all AUM invested in European money market funds. Investors like the product, they like the stable NAV feature, and what we told the Commission is that for the purpose of writing the report to the co-​legislators, yes, of course, to consider it also because it is in the review clause of the MMFR. But be very careful as they there are no comparable second-​best alternatives there. Increase liquidity buffers, I mentioned that this is not only an issue that would elevate the existing liquidity buffers for VNAV and LVNAV funds as proposed by the ESRB. But it'​s also about adding on this public debt quota that, as I said before, will not work."

On the "Use of swing pricing," Cupelli comments, "I won'​t elaborate that we'​re fully behind the evidence there to show that swing pricing will not work. It has served non MMFs, open-​ended funding so well. But if we are to avoid the first mover advantage, then definitely liquidity fees, anti-​dilution levies are a far better place for obvious reasons. Swing pricing is incompatible with stable NAV pricing as well. So, by the way, we also filed a two-​pager to the US SEC during the comment period rectifying that misread that we don'​t use swing pricing for money funds in Europe."

He also tells the EMFS, "Enhance reporting is another option that ESMA is toying with. Why not enhance the current reporting requirements? Depending on whether your fund is managing about 100 million or less, you may be required to enhance reporting from quarterly to monthly if you are above the 100 million threshold or otherwise go from annual to quarterly. This will not serve the purpose that NCA and ESMA are looking to achieve. They would like an early warning system that will allow them to detect the buildup of risk in well ahead of time. Given how quickly a money market portfolio changes in the matter of even a few weeks, even upgrading to monthly reporting will not yield a significant difference. We believe rather think that the good practice that has been shown to work very well during the crisis is to have firms respond to ad hoc requests coordinate closely with their NCA as the crisis develops so that they are better able to get a view of what is happening in the market at a certain point in time."

Cupelli also says, "The picture in Europe would not be complete without a quick look at the U.​K. We know that a joint discussion paper was published in May this year. Essentially, it is a nod to the FSB led reform proposals with a more U.​K. focus.... What is reassuring, however, is that the FCA has also published handbook guidance, clarifying again that managers do not need to automatically apply LMTs, even where the liquidity thresholds are breached. This, I think, goes to show how the FCA values giving managers that flexibility to manage their portfolio, rather than have these hard buffers and hard limits telling you what to do. Obviously, all of this seems to go in the best interests of investors. Looking at what may happen next, we believe that the FCA and the Bank of England will, will hold their fire. Their policy choices ultimately will depend on the direction of the EU and in part also due to the fact that the majority of MMFs that are marketed and sold in the UK are domiciled in Europe, Ireland and Luxembourg. So the U.​K. FCA is really limited to a small portion of the of UK marketed funds."

He adds, "​Finally, what to expect from the European Commission. I fully subscribe to what Michael was saying. It really seems that proceeding with the MMFR is a second order priority, if not third order. The Commission needs to finish what it has already started. And of course, there'​s the broader geopolitical context that makes matters all the more difficult. So, we wait to see this report. The Commission earlier this year in June told us that whatever comes in the report to the co-​legislators will prejudge in no way what it will then propose at a certain stage to reform again the MMFR. I think that we certainly need to keep an eye out around the phasing out of the LVNAV, although I think that we'​ve given them enough evidence and arguments to scrutinize this heavily. The same thing goes with this idea of a 80% European public debt quota.... So, yeah, definitely, I would say that the proposal will come later, if not under a new Commission. It seems that those that want this reform are the central banks, and I think the Commission is being pressured to do something also because of the parallel debate in in the U.​S. around the new rule. So that is where we stand in Europe."

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Last week, Crane Data hosted its 8th annual European Money Fund Symposium in Paris, France. The record 160+ attendees discussed rising yields in USD, EUR and GBP MMFs, the potential for more regulatory reforms in Europe and in the U.​S., and turmoil in the sterling money markets, among other things. Day 2 of the event began with a session entitled, "ICI Global & EFAMA Talk Regulatory Issues," which featured updates from ICI Global'​s Michael Pedroni and EFAMA'​s Federico Cupelli. We excerpt from Pedroni'​s segment below. (Note: Thanks again to our European MFS speakers, sponsors and attendees! Watch for more quotes in coming days and in our upcoming October Money Fund Intelligence newsletter.)

Pedroni explains, "​I'​m at ICI Global, which is a trade association affiliated with the Investment Company Institute.... We have longstanding expertise at ICI in the money fund space and my mandate as the new head of ICI Global is to grow and enhance our global, including European, presence. So, to that end, we'​re opening an office in Brussels.... What we'​re trying to do is bring in a mix of economists, analysts, lawyers, and really bring a kind of new approach to how we think about the regulatory space.... For our members, what matters is having a good cross-​jurisdictional, inter-​operable and predictable regulatory framework. So that'​s what we'​re all about."

He continues, "​So, what I want to talk about today is two things. One is, I want to talk just very briefly about recent money fund flow trends. Then second, I want to get on to the regulatory pipeline.... I'​ll give you a lay of the land, and then I'​ll talk about the issues that have us concerned and one that we'​re actually supportive of."

Pedroni comments, "​This [​chart] basically shows is the flows into the various categories of money funds here, in Europe, since the tightening cycle began in in mid-​July. [Y]​ou can see ... very modest outflows, virtually unchanged flows.... In some cases, institutional investors prefer to own their euro denominated money market assets directly rather than through funds. And secondly, there'​s an interest rate differential between dollar funds and euro funds. You see a pretty significant inflow, to the tune of $​90 billion, into U.​S. dollar money funds here in Europe."

He states, "For U.​S. [​domestic] funds ... if you [​look at] retail funds, though, you can see that there is a search for yield going on among retail investors. [​We'​ve seen about] $​93 billion in inflows on a base of $​290 billion. So, there'​s a pretty significant search for yield for among retail investors.... My key takeaway here is it'​s important to remind regulators that despite the current market strains that are out there, this product has been very steady -- there'​s no volatility."

Pedroni then says, "Now, I want to shift over to the regulatory update. What I'​ll do here is I'​ll give a quick lay of the land of what we see in the pipeline. My observations are really structured around two key considerations, as I mentioned. One is swing pricing.... We don'​t particularly like swing pricing, and I'​ll talk about that. But there is quite a bit of talk among regulatory authorities about implementing swing pricing for money funds. Then the second area is the elimination of the tie between the liquidity thresholds and fees and gates. And just to give a sneak preview, we kind of like that. So those are the two policy issues."

He tells the EMFS, "It'​s no surprise, I think, that after the events of March 2020, policymakers ... continue to be looking at reforms to money funds. But our sense is that that the review process is nearing an end now. So, I think we'​re about to get to a point where things are not being shaped so much anymore. They'​ll have recommendations and conclusions."

Pedroni says, "​The first key player in this is the Financial Stability Board, and actually… the Financial Stability Board has had IOSCO [​do] a lot of this work.... So, the FSB has signaled a couple of different policy options. It'​s looking at: swing pricing, as I mentioned, or other anti-​dilution levies; minimum balance at risk, where you would have a certain amount ... of [​investor'​s] money tied up and they could only withdraw it with a delay; capital buffers; removing the tie between fund liquidity and fees and gates; and, as I mentioned, eliminating the stable NAV and additional liquidity requirements. So out of all of those, there'​s only one that that we like ... removing the tie between funds, liquidity and fees and gates."

He continues, "The second key player in this, of course, is the Securities and Exchange Commission under Gary Gensler. Not to be outdone by their international counterparts, the SEC has proposed a pretty significant package of reforms through its proposed rule. We don’​t know exactly when the final rule is coming. But it could be as soon as October, although we sense that that timetable may slip a little bit."

The ICI Global Chief comments, "The SEC is looking at very similar issues. On the positive side, ... removing the required liquidity fee and redemption gate provisions. On the much more negative side from our perspective, requiring swing pricing for money market funds, increasing the daily and weekly liquid asset requirements, stress testing, and then specifying being more prescriptive on calculations of your WAM and your weighted average life, your WAL, and then lastly, reporting requirements. There'​s a lot in this proposal and we wrote a pretty robust response pushing back on many of the things that the SEC is proposing."

He adds, "​Then the third ... major creator of regulation is ... the European Commission, and they had a consultation earlier this year. I won'​t say too much about it. I'​m sure Federico will. But they billed it as a targeted review. But in fact, it asks a pretty broad set of questions about the structure of the of the industry and the product. It asks, among other things, about the impact of the European Money Market Fund regulation on the industry in the EU. It asks, worryingly, ... about the impact of eliminating the LVNAV product. It asks about whether some of the liquidity management tools being proposed under the current AIFMD review.... They'​re asking whether those liquidity management tools would be useful to apply to money funds. And again, that'​s a back-​door swing pricing point that they'​re making. So, we'​re anticipating that the commission is going to release a report based on this consultation. A report, though, that'​s the important [​point]. We do not anticipate that they are going to propose a new regulation in the near term."

Pedroni states, "Swing pricing is not the right solution for money market funds. We recognize that in the EU, non-​money market UCITS employ swing pricing and that that has worked. But we know for a fact that swing pricing is not used in money market funds.... Swing pricing, we believe, would actually strip money funds of some of the fundamental characteristics that customers of money funds value, and it would also introduce new operational challenges."

Finally, he tells us, "We know that IOSCO is very close to finalizing its paper. I think the paper is final and they'​re just waiting to issue it. This is the work that is the culmination of the post-​March 2020.... We understand that what IOSCO is going to recommend is not specific to money funds, but to open ended funds in general.... The second thing, and I'​m sure Federico will have some thoughts on this as well, is that we do not believe that the European Commission is going to propose a new rule for money funds in the next two years."

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