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Crane'​s 5th Annual Money Fund University, a two-​day crash course in money market mutual funds, attracted nearly 100 attendees to the Stamford Marriott in Stamford, Conn., late last week. Our Day 1 recap features coverage of the History of Money Funds, the Federal Reserve, Interest Rates and Money Fund Math, and Fund Ratings, as well as sessions explaining the various Instruments of the Money Markets (​including Repurchase Agreements, Commercial Paper, CDs, Tax-​Exempt/​VRDNs, CDs, Treasurys, and Time Deposits). Day 2, which we will report on in coming days (​and in our February MFI), focused exclusively on Money Fund Regulations. "A day and a half is really not enough time to learn about a space as big as the money fund sector, but we'​re going to give you a crash course and try," said Peter Crane, President, Crane Data, as well as host and MC for the event. He opened the conference leading a session called "History and Current State of Money Funds. (​Note: Crane Data'​s next conference will be our flagship Money Fund Symposium, June 24-​26 in Minneapolis. The next European Money Fund Symposium will be Sept. 17-​18 in Dublin and our next MF University will be Jan. 21-​22, 2016, in Boston.)

"​In 1994, when I started writing about money funds and when the Community Bankers Fund '​broke the buck,' the space was only about $​500 billion. Money market funds were not this behemoth that they were when the Reserve Fund broke the buck in 2008 and almost took down the world economy with it. Money funds peaked at $​3.​9 trillion in January 2009 after Reserve broke the buck; money was still pouring in because money funds lagged the money markets." Since that time, money fund assets declined precipitously over the next few years, dropping by about 15% per year in 2010 and 2011, he explained. But then the last 3 years in a row, money fund assets have clawed higher despite a near zero interest rate environment. "The fact that money fund assets have gone up fractionally the last 3 years in a row is just mind boggling," he said, testament to the safety and stability of the funds, which were made even safer by recent reforms.

On the other hand, there is the question of how recent reforms will impact money funds going forward, particularly Prime Institutional, which will be subject to a floating NAV in October 2016. "Institutional investors say they are going to leave, but as Churchill said about America, institutional investors will do the right thing, and stay in prime institutional money funds, after they'​ve exhausted every other possibility," quipped Crane. He believes that any outflows we do see from Prime Institutional MMFs will be "​dwarfed by inflows from bank deposits and perhaps from bond funds as well."

In the session that followed, two of the leading strategists in the space discussed "The Federal Reserve and US Money Markets." Brian Smedley, US Rates Strategist at BofA Merrill Lynch Global Research, shared his thoughts on when interest rates will rise. "Our expectation is that the Fed will start to shift up the Fed Funds target range starting in September of this year and from there we see hikes proceeding every other meeting, so half as fast as what they pursued last time." He expects it will go up to the 0.​25-​0.​50% range in September, then to 0.​50-​0.​75% in December 2015. By December 2016, rates will reach the 1.​50-​1.​75% range, he said.

"There'​s an old proverb that says, "​May you live in interesting times," and I think that'​s a fairly accurate description of financial market conditions, certainly in money markets at the moment," said Joseph Abate, Senior Vice President, Liquid Market Research at Barclays Capital. He focused on 4 topics; 1) the ongoing shortage of government safe assets in the financial sector and how that effects behavior in money markets, 2) how the repo market is changing largely because of dynamics related to the Fed and regulation, 3) the Federal Reserves arsenal of tools, namely reverse repo and term deposits, and 4) market liquidity, especially in prime assets. Going forward, he said, "​The next battle, if you will, is not going to show up on this front, it'​s going to come from somewhere else, and I think it'​s going to be liquidity."

In her overview of the "Instruments of the Money Markets," J.​P. Morgan Securities' Teresa Ho, Vice President, Short Duration Strategy, talked about challenges related to supply. "At its peak (​in 2007) total money market supply was around $​11.​5 trillion. If you exclude Treasurys, the peak was about $​9.​5 trillion" she said. "Fast forward to today, and that has fallen to $​5.​5 trillion (​excluding Treasurys) so we'​ve seen a drop of about $​4 trillion in the sector. As you might expect, a lot of it was driven by banks.

Case in point, the commercial paper market peaked at about $​2 trillion at the end of 2006; half of that was in ABCP, or asset-​backed commercial paper. This was a very popular way back in the day for banks to fund on a short-​term basis on behalf of their clients. This particular product has really fallen by the wayside. The economics for banks to participate in this market has really waned. So right now the ABCP market is at its all-​time low, at $​230 billion, and it is our expectation that this sector will continue to decline going forward because of other regulatory headwinds." Another sector that has declined is the repo sector. "This is a market that has also suffered from the liquidity crisis. It has shrunk almost by half since 2007 and will continue to shrink if you look at all the regulations out there.

On the other hand, investors still see money market funds as a good way to invest their cash on a short-​term basis, so demand is strong. "When you think about what has happened with supply over the last couple of years and factor that in to what'​s happened with demand -- you have a situation where there'​s too much cash chasing too few assets. There'​s a huge gap between supply and demand, and it'​s the reason why we see the competition for assets right now.... [​It'​s] so intense that'​s its driving rates very, very low in the front end market. There'​s a real concern that a lot of money will move out of bank deposits into money market funds because of regulations.... If indeed that is the case and cash moves from bank deposits to money market funds, then this supply/​demand imbalance becomes even more acute in the absence of additional supply."

There are some bright spots, however. One is Collateralized CP, which is a small but growing sector of the market at about $​30-$​35 billion. "Investors have been very attracted to this product." (Rob Crowe, Director, Institutional Clients Group, and Jean Luc Sinniger, Director, Money Markets, both of Citi Global Markets, took a deeper dive into CP in their session later in the day on "Instruments: Commercial Paper and ABCP.") Another glimmer of hope is in the Treasury Bill market.

Ho commented, "We have heard from the U.​S. Department of the Treasury that they intend to increase their operating cash balances. Right now they run an average of about $​60 billion; the expectation is that that they want to raise it to $​500 billion. I suspect if they do that, a lot of it would be funded in the bill [​market]. If that is the case, we'​ll see about $​400-$​450B in T-​Bill supply." She said in closing, "Regulations are going to alter and fundamentally change the landscape, but the markets will adapt and they will evolve and meet whatever needs are out there."

Finally, Day 1 ended with a session led by Adam Ackerman, Vice President and Portfolio Manager at J.​P. Morgan Asset Management on "Portfolio Management & Credit Analysis." Ackerman said, "​My presentation is about taking everything you'​ve seen today and bringing it all together to give you some insight into how portfolio managers think -- how we assess risk and model a portfolio for our fundamental goal, which is to provide liquidity." He said his primary goal is the preservation of capital. After that, his goals are to provide adequate liquidity and competitive yield, in that order. "Yield is important but it doesn'​t drive our decision making as portfolio managers, primarily."

He added, "We are in the business of providing liquidity; cash right now. We need to provide any type of liquidity that'​s demanded, whether it'​s billions or millions. We need to manage well enough so that we can manage any type of flow risk at any time." In terms of credit analysis, "​Generally, the way we think about it is, the higher the credit rating, the higher the liquidity. The better the credit quality, the more concentration I'​m comfortable with. Conversely, with lower credit quality, you want to lower your risk through lower concentrations." J.​P. Morgan employs a rigorous credit selection process that includes their own internal analysis, he explained. Finally, he said, the ultimate measure of success is how well you meet investors' demands of preservation of capital, liquidity, managing risk, and yield. Do that well, and the assets will come.... Stay tuned for coverage of Day 2 in coming days.

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As we mentioned Thursday when we released the January issue of our flagship Money Fund Intelligence newsletter, each year Crane Data recognizes the top-​performing money funds, ranked by total returns, for calendar year 2014, as well as the top-​ranked funds for the past 5‐​year and past 10-​year periods. We present the following funds with our annual Money Fund Intelligence Awards. These include the No. 1-​ranked funds based on 1-​year, 5-​year and 10-​year returns, through Dec. 31, 2014, in each of our major fund categories -- Prime Institutional, Government Institutional, Treasury Institutional, Prime Retail, Government Retail, Treasury Retail and Tax‐​Exempt. Below, we reprint the MFI article announcing the winners. (​We mentioned the 1-​year winners on the website Thursday -- see our Jan. 8 News "​Dec. MFI Features Awards, JPM'​s Donohue & Linton; Fed Shelves CSAs". We repeat them here, but we also review the 5-​year and 10-​year top-​performers below.)

The Top-​Performing Taxable fund overall in 2014 and top among Prime Institutional funds was BlackRock Cash Inst MMF (​BGIXX), which returned 0.​11%. (​We excluded BlackRock Cash'​s SL class due to its limited availability.) Among Prime Retail funds, Invesco Money Market Cash Reserve (​AIMXX) and Schwab Cash Reserve (​SWSXX) had the best return in 2014 (​0.​06%). BofA Govt Plus Reserve Capital (​GIGXX), Morgan Stanley Inst Liquid Govt Inst (​MVRXX), and Western Asset Inst Govt MM Inst (​INGXX) were the Top Government Institutional funds over a 1-​year period with returns of 0.​04%, while BofA Govt Plus Reserve Investor (​BOPXX) and Morgan Stanley Inst Liq Govt Cash Mgmt (​MSGXX) won the MFI Award for Government Retail Money Funds (​based on 1-​year return). Morgan Stanley Inst Liq Treasury Inst (​MISXX) and Western Asset Inst US Treasury Obligation MMF Inst (​LUIXX) were No. 1 in the Treasury Institutional class, and Morgan Stanley Inst Liq Treasury Cash Mgmt (​MREXX) ranked tops among Treasury Retail funds.

For the 5-​year period through Dec. 31, 2014, BlackRock Cash Inst MMF Inst (​BGIXX) and Fidelity Inst MM Portfolio (​FNSXX) took top honors for the best performing Prime Institutional money fund with returns of 0.​18%. Meeder Money Market Fund Retail (​FFMXX) once again ranked No. 1 among Prime Retail with an annualized return of 0.​11%. American Beacon US Govt Select (​AAOXX) ranked No. 1 among Govt Institutional funds, while Davis Government MMF (​RPGXX) ranked No. 1 among Govt Retail funds over the past 5 years. BlackRock Cash Treasury MMF Inst (​BRIXX) ranked No. 1 in 5-​year performance among Treasury Inst money funds, and Northern Trust Treasury Money Market (​NITXX) ranked No. 1 among Treasury Retail funds.

The highest‐​performers of the past 10 years included: Touchstone Inst MMF (​TINXX), which returned 1.​82% (​it was No. 1 overall and first among Prime Inst, though this fund will be liquidating -- see our Dec. 26 News "​Touchstone to Liquidate Money Funds, Victim of SEC'​s MMF Reforms"); Fidelity Select MM Portfolio (​FSLXX), which returned 1.​67% (​the highest among Prime Retail); American Beacon US Govt Select (​AAOXX) and Goldman Sachs FS Govt Inst (​FGTXX), which returned 1.​61%, (​No. 1 among Govt Inst funds); and Vanguard Federal Money Market Fund (​VMFXX), which ranked No. 1 among Govt Retail funds (​1.​57%). BlackRock Cash Treasury MMF Inst (​BRIXX) returned the most among Treasury Institutional funds over the past 10 years; and, Morgan Stanley Inst Liq Treasury Inv (​MTNXX) ranked No. 1 among Treasury Retail money funds.

We'​re also giving out awards for the best-​performing Tax‐​Exempt money funds. Fidelity AMT Tax Free Money Fund (​FIMXX) and Invesco Tax Exempt Cash Fund A (​ACSXX) ranked No. 1 for the 1-​year period ended Dec. 31, 2014, with returns of 0.​11%. Over the last 5 years, BMO Tax Free MMF I (​MFIXX) was the top performer with a return of 0.​21%. BMO Tax Free MMF I also was the top-​ranked fund for the 10-​year period ended Dec. 31, with a return of 1.​37%. See our latest Money Fund Intelligence XLS for more detailed rankings. Winners will receive a letter and certificate stating their No. 1 ranking , the number of funds in their category, and the criteria used.

In others news, management consulting firm Beacon Consulting Group released a white paper, entitled, "Getting Ready for Money Market Reform last week. BCG Principal Gerry Healy writes, "The Securities and Exchange Commission'​s (​SEC) money market reform imposes new operational requirements on institutional money market funds and provides retail money market fund boards with new tools should certain market events occur. Now is the time for asset managers and service providers to organize a readiness assessment program in anticipation of potential operating model changes, new procedures, technology modifications and new data flows that may be required in order to meet the operational requirements and regulatory filing deadlines,"

The paper explains, "Money market reform readiness activities generally consist of working with all affected functions to ensure that: Systems and processes are capable of handling the requirement for institutional funds to use a floating NAV out to four decimal places; Data and processes are established to comply with SEC filings (​new data on Form NMFP and new Form N-​CR) that may be required; and, Investor liquidity requirements (​e.​g. intraday dealing) are met."

On Accounting and NAV Dissemination, it says, "Fortunately, most fund accounting systems currently in use appear to be able to calculate the floating NAVs to the four decimal place requirement. Where firms will likely spend the most time during this phase is ensuring that the extracts and reports delivered to internal and external interested parties are retrofitted to accommodate the dissemination of the four decimal place NAV. All reports currently used to support money market funds, including hard copy reports, data extracts, management reporting, should be analyzed to ensure compliance. The reports will drive the development of business requirements that may be required to close any gaps related to NAV dissemination."

On the subject, Regulatory Filings - Data, the paper explains, "A trigger event that may require a filing occurs in one of two ways: via market activity or through board approved measures such as redemption gates or redemption fees. Once a trigger event is approved by the board or occurs within the portfolio due to market activity, a Form N-​CR filing requirement results. A "​sources and uses" data matrix for the N-​CR and NMFP filings is useful in developing requirements for any data or reporting gaps and tracks key inputs required to complete the new forms."

Finally, the paper says, "Complying with money market reform requirements will require a significant collaboration between asset managers and service providers. The asset manager'​s role in orchestrating this coordination is critical. An approach that includes a sound analysis of process changes and data requirements, followed by a comprehensive action plan to remediate any gaps can ensure a successful compliance process."

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Crane Data kicks off its slate of 2015 conferences with Money Fund University, which is right around the corner, January 22-​23, 2015, at the Stamford Marriott in Stamford, Conn. The 5th annual 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 the event also focuses on hot topics like money market reforms and other recent industry trends. The conference features a faculty of the money fund industry'​s top lawyers, strategists, and portfolio managers. If you haven'​t already registered, there'​s still time -- click here to register. (​Tickets for the 1 1/​2 day event are $​500, but our block of discounted hotel rooms is only available through Thursday, Jan. 8) Registration is also now open for our "​big show" -- Crane'​s Money Fund Symposium, which will be June 24-​26, 2015, in Minneapolis, Minn.

MFU offers attendees an affordable and comprehensive one and a half day, "​basic training" course on money market mutual funds, educating attendees on the history of money funds, the Fed, interest rates, ratings, rankings, money market instruments such as commercial paper, CDs and repo, plus portfolio construction and credit analysis. At our Stamford event, we will also take a deep dive into the SEC'​s new money market reforms, with several sessions on the topic.

The morning of Day One of the 2015 MFU agenda includes: History & Current State of Money Market Mutual Funds with Peter Crane, President & Publisher, Crane Data; The Federal Reserve & Money Markets with Brian Smedley, U.​S. rates, Bank of America Merrill Lynch and Joseph Abate, Director, Fixed Income Strategy at Barclays; Interest Rate Basics & Money Fund Math with Phil Giles, Adjunct Professor, Columbia University; and, Ratings, Monitoring & Performance with Greg Fayvilevich, Director, Fitch Ratings and Barry Weiss, Director, Standard & Poor'​s Ratings Services.

Day One'​s afternoon agenda includes: Instruments of the Money Markets Intro with Teresa Ho, Vice President, J.​P. Morgan Securities; Repurchase Agreements with Teresa Ho and Shaina Negron, Associate, J.​P. Morgan Securities; Treasuries & Govt Agencies with Sue Hill, Senior Portfolio Manager, Federated Investors; Commercial Paper & ABCP with Rob Crowe, Director, Citi Global Markets and Jean-​Luc Sinniger, Director, Money Markets, Citi Global Markets; CDs, TDs & Bank Debt with Garrett Sloan, Fixed Income Strategist, Wells Fargo Securities and Marian Trano, senior Vice President and Treasurer, Bank Hapoalim; Instruments of the Money Markets: Tax-​Exempt Securities, VRDNs, TOBs & Muni Bonds with Colleen Meehan, Senior Portfolio Manager, Dreyfus Corp., and Rebecca Glen, Senior Research Analyst, Dreyfus Corp.; and, Credit Analysis & Portfolio Management with Adam Ackermann, VP & Portfolio Manager, J.​P. Morgan Asset Management.

Day Two'​s agenda includes: Money Fund Regulations: 2a-​7 Basics & History with John Hunt, Partner, Nutter, McClennan & Fish LLP and Joan Swirsky, Of Counsel, Stradley Ronon; Regulations II: New MMF Reforms with Stephen Keen, Counsel, Reed Smith and Jack Murphy, Partner, Dechert LLP; Regulations III: More Reforms, Hot Topics with Stephen Keen and Jack Murphy; and Money Fund Data and Wisdom Demo 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 $​500, exhibit space is $​2,​000, and sponsorship opportunities are $​3K, $​4K, and $​5K. A block of rooms has been reserved at the Stamford Marriott. For more information on how to become a sponsor or exhibitor, click here.

We'​d like to thank our MFU sponsors -- Fitch Ratings, Dreyfus/​BNY Mellon CIS, J.​P. Morgan Asset Management, Standard & Poor'​s Ratings Services, Wells Fargo Advantage Funds, and Dechert LLP -- for their support, and we look forward to seeing you in Stamford in just over two weeks. E-​mail Pete Crane (​pete@​cranedata.​com) for the latest brochure or visit www.​moneyfunduniversity.​com for more details.

Crane Data also has posted the preliminary agenda for our flagship conference, Money Fund Symposium, which will be held June 24-​26, 2015, at the Minneapolis Hilton in Minneapolis, Minn. The website -- www.​moneyfundsymposium.​com -- is live and we'​re now accepting registrations for our 7th annual Symposium. Crane Data, with partner Kinsley Meetings, hosted the largest gathering of money fund professionals anywhere (​we had a record attendance of 495) last past summer in Boston, and we again expect a capacity crowd in Minnesota.

Crane'​s Money Fund Symposium offers money market portfolio managers, investors, issuers, and service providers a concentrated and affordable educational experience, as well as an excellent and informal networking venue. Registration for Crane'​s Money Fund Symposium 2015 will remain $​750 (​like it'​s been the past 6 years); exhibit space is $​3,​000; and sponsorship opportunities are $​4.​5K, $​6K, $​7.​5K, and $​10K.

Finally, watch for the preliminary agenda on our 3rd annual European Money Fund Symposium soon. Our next "​offshore" money fund event is scheduled for Sept. 17-​18, 2015, in Dublin, Ireland. Let us know if you'​d like more information on any of our upcoming conferences, and watch for more information in coming weeks.

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Mutual fund news source Ignites.​com published an "Opinion" piece entitled, "Things are Looking Up for Money Funds in 2015," which features commentary from Crane Data President Peter Crane. Our Crane writes, "Money market fund providers have lived with the pain of zero interest rates and the threat of radical regulatory change for six years, but 2015 is expected to bring big changes on both fronts.... Now things are looking up for money funds, and next year could even be downright excellent for such "​cash" investments. However, there also are plenty of reasons to remain cautious. So while I believe that money funds will see light at the end of the tunnel in 2015, there is a chance that the industry could see an oncoming train instead. Below are three predictions for the sector, along with a brief outlook and some other developments to watch for. 1. The Federal Reserve should begin to increase interest rates sometime after mid-​2015, ending an era of near-​zero yield. While higher interest rates do carry risks for money funds, they should be a godsend to their managers and investors. Fee waivers have savaged fund revenues, causing managers to forgo more than 60% of the fees that they normally collect. Last year, money fund managers collected in the neighborhood of $​5 billion of what normally would be an $​8 billion annual fee total. Even one Federal Reserve rate hike during 2015 could mean several billion dollars in annualized revenue being returned to these funds, and two increases should restore almost all of the waivers.... Forecasts are for the Fed funds target to be more than 1% by the end of 2015 and 2.​5% by the end of 2016, which should be great news for money funds. 2. Money funds should actually see significant asset inflows. With rising interest rates, money funds likely will regain their historical yield advantage over what is now more than $​10 trillion in bank deposits, where the vast majority of "​hot" money now resides. Institutional assets, in particular, could pour out of deposits as banks feel pressure to cover new regulatory costs stemming from their $​4 trillion in uninsured deposits. In addition, bond fund flows could reverse in 2015 if the Fed hikes interest rates as expected.... The bottom line: money fund assets should grow between 5% and 10%, or somewhere between $​135 billion and $​270 billion of inflows, in 2015, up from the current AUM total of $​2.​7 trillion.... 3.​The common wisdom about ultra-​short bond funds, separately managed accounts (​SMAs) and private money funds' gaining a substantial amount of assets will prove to be wrong. While there will be continued innovation and interest in the cash-​management space outside of traditional money funds, the vast majority of assets will remain within them. Money market fund assets have been stable for three years -- and through the most stressful, trying time in the history of money funds. That fact indicates that money fund investors are in no hurry to move away from the vehicle."

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