News Archives: May, 2021

The Investment Company Institute released its latest weekly "Money Market Fund Assets" report, which shows MMFs jumping by $67.7 billion, their biggest increase since the last week of April 2020 and their first time back above the $4.6 trillion level since early July 2020. ICI's weekly "Assets" release shows money fund assets up $311 billion, or 7.2%, year-to-date in 2021. Inst MMFs are up $396 billion (14.3%), while Retail MMFs are down $84 billion (-5.5%). Over the past 52 weeks, money fund assets have decreased by $179 billion, or -3.7%, with Retail MMFs falling by $129 billion (-8.2%) and Inst MMFs falling by $51 billion (-1.6%). ICI also released its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for April 2021.

The release says, "Total money market fund assets increased by $67.73 billion to $4.61 trillion for the week ended Wednesday, May 26.... Among taxable money market funds, government funds increased by $61.96 billion and prime funds increased by $5.73 billion. Tax-exempt money market funds increased by $37 million." ICI's stats show Institutional MMFs increasing $69.4 billion and Retail MMFs decreasing $1.7 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.021 trillion (87.2% of all money funds), while Total Prime MMFs were $494.6 billion (10.7%). Tax Exempt MMFs totaled $93.1 billion (2.0%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than our asset series.)

It explains, "Assets of retail money market funds decreased by $1.65 billion to $1.44 trillion. Among retail funds, government money market fund assets increased by $584 million to $1.12 trillion, prime money market fund assets decreased by $1.80 billion to $235.07 billion, and tax-exempt fund assets decreased by $437 million to $82.70 billion." Retail assets account for just under a third of total assets, or 31.3%, and Government Retail assets make up 78.0% of all Retail MMFs.

ICI adds, "Assets of institutional money market funds increased by $69.38 billion to $3.17 trillion. Among institutional funds, government money market fund assets increased by $61.37 billion to $2.90 trillion, prime money market fund assets increased by $7.54 billion to $259.48 billion, and tax-exempt fund assets increased by $473 million to $10.42 billion." Institutional assets accounted for 68.7% of all MMF assets, with Government Institutional assets making up 91.5% of all Institutional MMF totals.

The monthly "Trends" report shows that money fund assets increased $31.9 billion in April to $4.529 trillion. This follows increases of $129.4 billion in March and $39.4 billion in February, but decreases of $5.2 billion in January, $10.0 billion in December and $12.0 billion in November. Assets also fell $47.6 billion in October, $118.4 billion in September, $56.7 billion in August, $55.4 billion in July and $133.5 billion in June. For the 12 months through April 30, 2021, money fund assets have decreased by $207.9 billion, or -4.4%. (Month-to-date in May, through 5/27, MMF assets have increased by $78.3 billion according to our MFI Daily.)

Their monthly release states, "The combined assets of the nation's mutual funds increased by $783.78 billion, or 3.2 percent, to $25.55 trillion in April, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an inflow of $52.82 billion in April, compared with an inflow of $39.14 billion in March.... Money market funds had an inflow of $31.92 billion in April, compared with an inflow of $129.49 billion in March. In March funds offered primarily to institutions had an inflow of $60.44 billion and funds offered primarily to individuals had an outflow of $28.52 billion."

The Institute's latest statistics show that Taxable MMFs gained assets last month while Tax Exempt MMFs lost assets. Taxable MMFs increased by $34.9 billion in April to $4.433 trillion. Tax-Exempt MMFs decreased $3.0 billion to $96.3 billion. Taxable MMF assets decreased year-over-year by $168.2 trillion (-3.7%), while Tax-Exempt funds fell by $39.7 billion over the past year (-29.2%). Bond fund assets increased by $96.2 billion in April to $5.398 trillion (they broke above the $5.0 trillion level in October); they've risen by $919.8 billion (20.5%) over the past year.

Money funds represent 17.7% of all mutual fund assets (down 0.5% from the previous month), while bond funds account for 21.1%, according to ICI. The total number of money market funds was 326 down 2 from the month prior and down from 360 a year ago. Taxable money funds numbered 259 funds, and tax-exempt money funds numbered 67 funds.

ICI's "Month-End Portfolio Holdings" confirms increases in Repo, CP, CDs and Other securities, and decreases in Treasuries, Notes and Agencies. Treasury holdings in Taxable money funds remain the largest composition segment (since surpassing Repo last April). Treasury holdings decreased by $20.8 billion, or -0.9%, to $2.338 trillion, or 52.8% of holdings. Treasury securities have increased by $387.3 trillion, or 19.9%, over the past 12 months. (See our May MF Portfolio Holdings: Repo, TDs Jump; Treasuries, Agencies Drop.")

Repurchase Agreements were in second place among composition segments; they increased by $33.8 billion, or 3.0%, to $1.160 trillion, or 26.2% of holdings. Repo holdings have dropped $87.6 billion, or -7.0%, over the past year. U.S. Government Agency securities were the third largest segment; they decreased $11.6 billion, or -2.0%, to $559.4 billion, or 12.6% of holdings. Agency holdings have fallen by $432.7 billion, or -43.6%, over the past 12 months.

Certificates of Deposit (CDs) remained in fourth place; they increased by $9.9 billion, or 5.3%, to $196.3 billion (4.4% of assets). CDs held by money funds shrank by $53.2 billion, or -21.3%, over 12 months. Commercial Paper took fifth place, up $99 million, or 0.1%, to $176.9 billion (4.0% of assets). CP has decreased by $30.6 billion, or -14.7%, over one year. Other holdings increased to $29.3 billion (0.7% of assets), while Notes (including Corporate and Bank) were down to $4.5 billion (0.1% of assets).

The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 43.420 million, while the Number of Funds was down two at 259. Over the past 12 months, the number of accounts rose by 4.103 million and the number of funds decreased by 21. The Average Maturity of Portfolios was 42 days, down two from March. Over the past 12 months, WAMs of Taxable money have increased by 2.

The Federal Reserve Bank of Boston published, "Money Market Mutual Funds: Runs, Emergency Liquidity Facilities, and Potential Reforms." The new paper, authored by Kenechukwu Anadu and Siobhan Sanders, states, "Twice in the past 12 years, prime and tax-exempt money market mutual funds (MMMFs), collectively non-government MMMFs, have experienced large investor redemptions and runs. In both cases, the runs contributed to significant strains in short-term funding markets, an important source of funding for businesses and municipalities. These strains only abated after the Board of Governors of the Federal Reserve System and the United States Department of the Treasury took emergency actions, including the establishment of lending facilities for non-government MMMFs."

Its summary continues, "Policymakers are now examining potential reform options to enhance non-government funds' resilience and reduce run risk. An option worth examining is a requirement that all non-government MMMFs convert to government MMMFs, which remained resilient -- and even experienced large inflows -- during periods in which non-government funds experienced runs."

The paper explains, "The remainder of this note is organized as follows. Sections 2 and 3, respectively, describe past runs on non-government MMMFs and the impact of these runs on the short-term funding markets. Section 4 discusses official sector actions that were taken to stem the runs. Past and potential reforms are described in Section 5. The penultimate section highlights some cash management vehicles that may have vulnerabilities like those of non-government funds. A conclusion follows in Section 7."

The Introduction says, "During the 2008 global financial crisis, prime MMMFs experienced large investor redemptions and runs. Amid the onset of the COVID-19 pandemic in the U.S. in March of 2020, prime MMMFs experienced runs like those observed nearly 12 years earlier. Net outflows from prime MMMFs were approximately 19 percent and 17 percent in the worst two weeks of the MMMF runs in 2008 and 2020, respectively. In contrast, over the same reporting periods in 2008 and 2020, government MMMFs experienced large net inflows in the wake of investor flight to safety." (Note: The Boston Fed paper doesn't include a large portion of the Prime Inst MMF market that the SEC and Crane Data track, so our totals show a much milder outflow from Prime.)

A section on "Official sector interventions," tells us, "With approval from the U.S. Treasury, the Board of Governors of the Federal Reserve System took numerous emergency actions in 2008 and 2020, including those aimed at halting runs on MMMFs and restoring the functioning of the broader short-term funding markets. Specifically, under authorization from the Board of Governors, the Federal Reserve Bank of Boston established the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) in 2008 and the Money Market Mutual Funds Liquidity Facility (MMLF) in 2020."

On past and future reforms, the Boston Fed team writes, "During the 2014 reform deliberations, some academics and policy makers noted that fees and gates could serve as potential run accelerants.... `There is some evidence that concerns about fees and gates exacerbated runs. For example, Figure 3 suggests that institutional prime funds with WLA levels below 40 percent of net assets tended to experience more rapid net outflows in March 2020. Li et al. (2020) examined this empirically and found that institutional prime funds' outflows were highly sensitive to WLA during the COVID-19 crisis -- funds with lower WLA had larger outflows -- and the sensitivity of WLA was greater than in previous crises. To be sure, these observations do not suggest that runs would not have occurred absent the linkage between fees and gates and WLA levels, as funds with higher holdings of WLA also experienced large outflows."

They continue, "Policy makers are now examining potential reform options for MMMFs. One option worth examining is to require institutional and retail prime and tax-exempt MMMFs to convert to government funds. The potential benefits of this option are three-fold. First, the requirement is relatively simple to implement, and market adjustment to this change could be facilitated by an appropriately lengthy transition period. Second, government MMMFs have proved resilient during prior periods of severe stress. Therefore, this option reduces the vulnerabilities arising from the MMMF sector. Finally, the likelihood of future official sector support for MMMFs is substantially reduced under this option."

The paper adds, "One obvious drawback is the reduced demand for short-term corporate and municipal debt held by non-government MMMFs. However, evidence from prior instances in which MMMF holdings changed significantly suggest that the effects of a further reduced prime and tax-exempt industry on the broader funding markets would be transitory."

Anadu and Sanders also say, "Besides U.S. MMMFs, other cash management vehicles that invest substantially in short[1]term debt instruments also experienced varying degrees of stress last March (Financial Stability Report (2021)). These vehicles may be suitable substitutes for some investors in non-government MMMFs. Accordingly, the risk-mitigation benefits of any potential reforms to MMMFs depend, in large part, on the degree to which activities migrate to other structures with similar vulnerabilities."

The paper states, "We highlight two potential MMMF substitutes: short-term investment funds (STIFs) and ultrashort-bond mutual funds, which hold approximately $322 and $246 billion in assets, respectively, and have both grown in recent years.... Available data shows STIF assets increased from December 2019 to March 2020, alas, granular data on STIFs are not available. Therefore, the aggregated data likely masks shifts from prime-like into government-like STIFs during the stress period, as was seen in MMMFs. Ultrashort-bond Mutual Funds (MFs), SEC-registered funds that invest substantially in short-term debt instruments, also experienced large outflows in March 2020."

A footnote explains, "STIFs are collective investment funds (CIFs) that typically seek to maintain a stable NAV. The primary Federal regulators of CIF sponsors are the Office of the Comptroller of the Currency (OCC), Federal Reserve, or the Federal Deposit Insurance Corporation, depending on the type of sponsor. CIFs administered by state-chartered, limited purpose trust companies are overseen by the relevant chartering agencies. CIFs administered by OCC-regulated entities are governed by Rule 9.18, which was amended in 2012 to require, among other things, that STIFs maintain a WAM and WAL of 60 and 120 days, respectively, and report detailed portfolio data to the OCC. The degree to which non-OCC regulated CIF sponsors follow Rule 9.18 varies by state."

Finally, the paper tells us, "To reduce the likelihood that risk from prime and tax-exempt funds migrate into other structures with similar vulnerabilities, policy makers should consider specific enhancements to transparency and regulation for those structures as they are considering MMMF reforms. Possible measures could include enhanced transparency and disclosure for STIFs and mandatory swing pricing for ultrashort-bond funds."

The piece concludes, "MMMFs play an important role in short-term funding markets. The 2008 runs on prime and tax-exempt funds (or non-government funds) revealed the vulnerabilities in MMMF structures. Post-crisis reforms promulgated by the SEC mitigated some of these risks; however, the subsequent runs in 2020 suggests that vulnerabilities remain. Academics, policy makers, and industry participants are now exploring various reform options for MMMFs. An option worth examining is to require all non-government MMMFs to convert to government funds. Notably, the largest prime fund sponsor did so on its own last year. Policy makers should also pay attention to other cash management vehicles that may have similar vulnerabilities to non-government funds, and, as needed, consider potential reforms to ensure that the risks from non-government funds does not migrate to other vehicles such that the net effects of any new reforms is diminished."

Bloomberg posted the article, "Money Market Mess Fuels Fight Over Just Which Rulebooks to Fix," which reviews the latest discussions over yet another round of money market mutual fund regulatory reforms. They explain, "The convulsions that rocked U.S. money markets in the early days of the pandemic are spurring a new push to overhaul the rules once and for all -- if regulators and traders can agree on what's broken and how to fix it. Some point to the cash-like funds that buy swaths of short-term corporate paper, and left companies in a hole when an investor exodus halted new purchases last year. Others say these funds are scapegoats, and the real problem lies with the banks that arrange these IOUs but can't backstop them. Others, meanwhile, argue that money-market blowups are all but inevitable, and regulators simply need to prepare accordingly."

The piece quotes SSGA's Kim Hochfeld, "You can't just fix money funds and expect the problem to go away.... There are broader market issues that need to be solved." Bloomberg continues, "The last batch of reforms 'didn't really do the job,' Fed Chair Jerome Powell told CBS's '60 Minutes' program in April. It's now time to address money-market issues 'decisively' he said."

The article also quotes Tom Callahan of BlackRock, "Commercial-paper markets in times of stress can freeze.... As long as that is the dynamic, regulators can do whatever they want to prime funds. But if this issue of an unstable CP market is not addressed, then in the next crisis, regulators will be forced to come in and bail out the commercial-paper market."

Bloomberg's article continues, "Callahan -- alongside Kate Fulton, BlackRock's head of U.S. public policy -- is calling for regulators to convene a group of banks, issuers and money funds and other participants to study potential commercial-paper reforms, according to a comment letter to the Securities and Exchange Commission, sought input on possible reforms." Joseph Abate of Barclays tells them, "It's a bit more complicated than one solution fits all.... There are a lot of moving parts to this."

It states, "Given how intertwined the central bank has become in markets since the 2008 crisis, it may be inevitable that the Fed is called on to periodically bail out various asset classes. At the height of the 2020 funding strains, the central bank revived a mechanism that it had used to great effect in the previous crisis: the Money Market Mutual Fund Liquidity Facility. Yet while this almost immediately calmed markets and was barely touched once the storm had passed, the perception of an industry bailout sits uneasily with many."

Bloomberg adds, "ICI, the body that represents funds, has pushed back against the idea that money-market reforms should be instituted on the grounds of preventing any future central-bank assistance. 'We question those who say that money-market funds must be regulated so aggressively that central-bank intervention would never be needed again,' it wrote in a comment letter to the SEC. 'Holding money market funds at fault for central-bank intervention intended to calm financial markets during a time of extreme uncertainty around a global catastrophe should not be the starting point for any discussion of reforms.'"

Lastly, they write, "The FSB is expected to publish a report in July for consultation that will outline policy proposals aimed at improving money funds' resilience, though it could be long after that before anything actually changes." (Note: For those that missed our "Handicapping Money Fund Reforms webinar last Thursday, the recording is available here.)

In other news, 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 May 21, 2021) includes Holdings information from 69 money funds (up 6 funds from a week ago), which represent $2.062 trillion (up from $1.976 trillion) of the $4.917 trillion (41.9%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.)

Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $1.006 trillion (up from $977.3 billion a week ago), or 48.8%, Repurchase Agreements (Repo) totaling $580.5 billion (up from $577.8 billion a week ago), or 28.2% and Government Agency securities totaling $231.6 billion (down from $232.2 billion), or 11.2%. Commercial Paper (CP) totaled $83.1 billion (up from $64.7 billion), or 4.0%. Certificates of Deposit (CDs) totaled $58.6 billion (up from $48.5 billion), or 2.8%. The Other category accounted for $76.3 billion or 3.7%, while VRDNs accounted for $25.6 billion, or 1.2%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.006 trillion (48.8% of total holdings), Federal Home Loan Bank with $129.9B (6.3%), Federal Reserve Bank of New York with $107.0B (5.2%), BNP Paribas with $57.7B (2.8%), Federal Farm Credit Bank with $45.5B (2.2%), RBC with $45.0B (2.2%), Fixed Income Clearing Corp with $40.6B (2.0%), Federal National Mortgage Association with $35.8B (1.7%), JP Morgan with $32.4B (1.6%) and Credit Agricole with $30.8B (1.5%).

The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($226.3 billion), Wells Fargo Govt MM ($154.4B), Fidelity Inv MM: Govt Port ($131.8B), Federated Hermes Govt Obl ($130.2B), Morgan Stanley Inst Liq Govt ($126.0B), Dreyfus Govt Cash Mgmt ($113.4B), JP Morgan 100% US Treas MMkt ($105.9B), First American Govt Oblg ($98.7B), State Street Inst US Govt ($88.3B) and JPMorgan Prime MM ($76.7B). (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.)

Crane Data recently hosted, "Handicapping Money Fund Reforms," the latest in a series of free webinars. We quoted from the first two-thirds of the webinar, which discussed the future of reforms and the flood of SEC comment letters, yesterday in our CD News piece, "Crane and Dechert's Cohen: Handicapping Money Fund Reform Webinar." Today, we excerpt from the rest of the webinar. On potential reform options, Cohen explains, "I think the big one that you noted was delinking the 30 percent [liquidity level from gates and fees].... It's the number one option on the President's Working Group. I would think ... that's one the industry is perfectly willing to live with, and it seems to be one the regulators are willing to offer. I do think that one will likely happen.... I think the floating NAV for [retail] money market funds is interesting. There are two very large sponsors who supported that, they're not as big in the space, obviously, as others, so they don't have as much of an incentive to preserve that.... It is something that the regulators constantly think about, that stable NAV.... One interesting one, as Pete and I talked about, is requiring prime money market funds to hold a minimum amount of securities in Treasuries. And then, of course, I think a number of commenters talked about improving the commercial paper market structure overall."

Crane adds, "The Dreyfus comment letter was the one that mentioned government securities. I think that was a nice addition, a nice something that even though the weekly liquid assets already presumably includes a chunk of Treasuries, it's mandating that chunk and the counterbalance of NAVs going up while other NAVs are going down. That was a nice little add on." Regarding the likely timeline of reforms, Cohen explains, "I think reform this time around is not a question of if, but when.... In terms of next steps, they’re going to be reading those comment letters, that could take another month or two. One thing to note here is that the new chair of the SEC, Gary Gensler, was just sworn in two weeks ago. Sarah ten Siethoff … is now the interim Director of the Division of Investment Management, but there will be a new director there. And who that is, is going to help guide reform as well. So, we’ve got a new chair, Gary Gensler, and we'll potentially, most likely, have a new Director of the Division of Investment Management."

Cohen tells us, "I want to talk about the rulemaking process in general. They've issued the President's Working Group for comment. I would view that as almost what we refer to as an advance notice of proposed rulemaking. So, putting some ideas out there and letting the industry talk about them. The next step, again, if this is being led by the SEC, would include a formal proposal. I think there's likely going to be a little bit of time until that happens. It possibly could happen before the end of the summer. But they would have to review those comment letters, the director would probably need to be in place, and we'd probably hear a little bit more in terms of speeches from various commissioners, including the Chair ... showing us that it's coming soon. Now, after the SEC issues the proposal, there's a comment period, an opportunity for the industry to comment on the actual proposal. That would be ... most likely a 90-day period after publication.... The publication in the Federal Register usually takes a week or two.... So you're looking at 100-110 days after a proposal is issued for a comment period where the SEC would not be doing anything but collecting comments. Then, after reviewing those comments and addressing them, the SEC could issue a formal rule."

He adds, "The fastest rule makings in the investment management industry take seven to eight months, to give you a little bit of color. The Valuation Rule for mutual funds, that was proposed in April and it was adopted by the SEC in December, so that's eight months, and that was really quick…. The Derivatives Rule in the funds space ... was most recently proposed in November 2019, and then it was adopted in November 2020, so 12 months.... [Y]ou can sort of see that this takes a while. If you look back at the last money market reforms, it was proposed in June of 2013 and adopted in July 2014. So, it can take about a year."

Finally, Cohen says, "I think the other thing to note is even when the SEC adopts a formal rule the compliance period can take quite a while after that depending on the scope of the changes. After the 2010 amendments, it was three months until the compliance period kicked in. But after the larger reforms in 2014, it was 18 months.... So, if you look at the SEC issuing, the earliest timeline possible is something in August or July of this year, the final rule wouldn't be adopted until sometime around this time next year, with the compliance date, if it was just tweaks, end of the fall of 2022." (Note: The Handicapping Reforms webinar recording is available here for those that missed it. Also, mark your calendars for our next free webinar, Asian Money Fund Symposium, which will take place June 17 from 10am-12pm EDT.)

In other news, Will Goldthwait of SSGA hosted the first session of the "Masterclass Series: Disruptors in Cash." He asks, "What can I do to alleviate the negative yields in my portfolio and what can I do to alleviate the zero interest rates in my portfolio? What we'll do is, we'll spend time with these folks talking to them about what their risk tolerances are, what their cash flows look like, what sort of demands there might be on this cash. Sometimes they're able to answer those questions, other times they're not. Regardless, of whether they are or are not, we're able to build out a strategy for them and understand sort of what levers are out in the marketplace."

Goldthwait adds, "So when we think about alternatives to cash, we sort of think about it in three categories. We think about it in the credit category, sort of credit ratings, credit tolerance; we think about it in duration, you know, how far out on the yield curve, what sort of terms are you willing to lock up; and then we think about it in the asset type category."

Finally, the Financial Times published, "Glut of cash in US financial system pressures Fed policy rate." They write, "The Federal Reserve may need to recalibrate its policy toolkit, analysts say, as a glut of cash sloshing through the US financial system has made it more difficult for the central bank to maintain tight control of its policy rate. Short-term interest rates have plummeted to historic lows since the start of this year as financial institutions that are flush with cash compete to lend it out in ultra-low risk vehicles, such as US government securities maturing in the near future or so-called repurchase agreements."

They quote J.P. Morgan Securities Strategist Teresa Ho, "Clearly there is very big, insatiable demand  ...  and it is like a game of musical chairs in terms of who can find the supply first." She "estimates there is a $751bn supply-demand gap in funding markets as of April." The piece continues, "The surge in liquidity stems in part from the Fed's asset purchase programme in which it buys up $120bn in US government debt every month. Bank deposits shifting into money-market funds as well as the Treasury department's plans to draw down its record stash of cash and pay out funds associated with the recent stimulus package passed by Congress have also increased reserve balances."

The FT piece says, "Large amounts of cash have made their way back to the Fed, with demand for the central bank's reverse repo facility -- which gives financial firms a place to park it temporarily -- surging. Daily usage last week climbed to the highest level since 2017, hitting $369bn on Friday. These factors have pressured the Fed's benchmark interest rate to a level that has begun to attract more scrutiny from analysts and investors. The federal funds rate is hovering at 0.06 per cent, well below the middle of the 0-0.25 per cent rate the central bank is targeting."

It adds, "A sustained tick lower to 0.05 per cent could be sufficient to prompt action from the Fed, said Kelcie Gerson, a strategist at Morgan Stanley. The Fed has already expanded access to the reverse repo programme and lifted limits on the amount of cash financial companies can park at the central bank from $30bn to $80bn in order to drain liquidity from the system and slow down the downward drift in short-term rates. A next step could include increasing the interest the Fed pays banks on reserves they hold at the central bank, analysts say. Another is increasing the rate the Fed pays in its reverse repo programme."

Last week, Crane Data hosted its latest webinar "Handicapping Money Fund Reforms," which featured our Peter Crane and Dechert LLP's Steve Cohen discussing the latest developments on further Money Market Fund Reforms and when to expect a regulatory proposal from the SEC. We quote from the session below. The recording is available here for those that missed it. (Note: Mark your calendars for our next free webinar, Asian Money Fund Symposium, which will take place June 17 from 10am-12pm EDT. Register here: https://attendee.gotowebinar.com/register/1572569223058129680.)

Cohen comments, "As we talk about what's going on, with future reforms as well as the 2014 reforms, you'll see that the regulators have really moved away from just that idea of trying to preserve the fund's stable NAV and have really focused more on systemic risk. They've been focused on potential redemptions; heavy redemptions from money market funds that could cause systemic or contagion issues in the system. So, I just want to kind of keep that in context. That's a newer sort of phenomenon with respect to money market funds and the way the regulators look at money market funds."

He tells us, "In 2010, the SEC proposed and then adopted pretty quickly, extensive amendments to Rule 2a-7. Those addressed a lot of the issues associated with the Lehman bankruptcy and the Reserve Fund breaking the buck. The risk limiting provisions that I was talking about, the diversification requirements, the quality requirements, the maturity requirements, they were changed and strengthened. WAMs were reduced from 90 days to 60 days; it created a WAL limit of 120 days. It posed these new weekly liquidity requirements and daily liquidity requirements -- and we'll talk about that in a bit because it will be very important to think about for future reforms -- and also some new disclosure requirements and reporting requirements."

Cohen says, "Now, even though there were extensive changes to money market funds in 2010, the chairman of the SEC at that time, Mary Schapiro, had said when they were adopted that this was just a first step. But the SEC really struggled to propose additional reforms.... The SEC under a new chair, Mary Jo White, ended up proposing new reforms in 2013 and then those reforms were adopted in 2014 with the final compliance date of October 14th, 2016. So, we've been living for about five years under the new rules.... Institutional Prime and Municipal money market funds ... have to operate with the floating NAV per share and the possible imposition of fees and gates. Retail money market funds can operate with a stable NAV per share, but they have to have fees and gates. And government money market funds are able to operate with a stable NAV per share without fees and gates."

On March 2020, he adds, "Unlike in 2008, where there was a clear credit event ... this time around it really was a liquidity issue. And the issue was, could investors get out before there was a potential for fees and gates? I think the other concern was ... a fear [over] triggering a Form N-CR filing, including sponsor support. By the end of the week of March 16, the Federal Reserve Board stepped in and established what's referred to as the Money Market Mutual Fund Liquidity Facility, or the MMLF, to provide support for the money markets and for providing liquidity in the money markets.... Ultimately, I think the point is, the MMLF did help restore liquidity in the money markets."

Crane says, "I should add on the last round of reforms that the real change from the fund industry's perspective was not just what the SEC did. The investor reaction of moving $1 trillion dollars from prime into government [MMFs] probably did more to reshape the industry than all the changes. They did that in anticipation of the gates and fees to avoid the floating NAV and gates fees, but you basically had prime money funds cut from $2 trillion to $1 trillion in 2016. And so, they were a lot smaller this time around. And you see the Government funds spiked up in March. Prime had what I still won't call a run; I call it a 'brisk walk'.... And then the Fed and the Boston Fed thankfully reignited those programs to support it."

Cohen also comments, "Immediately after the March 2020 crisis, global regulators, as well as banking regulators and even some representatives of the SEC, noted that work would likely need to be done in this space. I think it culminated ... right before Christmas, the President's Working Group on Financial Markets released a report on potential reform options for money market funds.... [They] recommended that more should be done to address, again, systemic risks and structural vulnerabilities in money market funds [and] presented ten possible options."

He continues, "I'll go through the ten options really quickly, but the first and I think the one that most of the industry has supported, is the removal of the tie between the money market fund liquidity and gate thresholds. So, de-linking that 30 percent weekly liquid assets from the determination by a board to impose fees and gates ... that's actually a new option. One thing I forgot to mention about the PWG, it also after the 2008 crisis issued recommendations ... many of which are reappearing here in this most recent iteration."

Cohen tells the webinar, "The second option was, reforming the conditions for imposing redemption gates, perhaps not having the 30 percent and the 10 percent, other options around that. A third option was the position of a minimum balance of risk.... Money market fund liquidity changes was another option, so different proposals around liquidity management. Countercyclical weekly liquid asset requirements, this would be as there are large redemptions the threshold decreases so that there's not this pressure of a fund having to meet 30 percent at all times. Another option [is] imposing the floating NAV on [retail] prime and tax-exempt money market funds.... Swing pricing requirements ... having a capital buffer requirement [and] a liquidity exchange bank membership [were other options]."

He adds, "As I mentioned, most of these were floated, or at least raised at some point, following the 2008 crisis and the 2010 amendments as potential future reforms. But I think ultimately, they were all, except for the first one, deemed to be too burdensome or in some cases unworkable or would dramatically hurt money market funds which of course, do provide a lot of funding to the short-term space. The other thing that was interesting is the SEC immediately jumped on this and put it up for comment ... and requested that the industry provide feedback, and indeed many fund groups and trade associations did."

Crane then says, "If you look at the SEC site, there are 50 comments, and one of the interesting things that strikes me is that [the] fund companies, as Steve said, almost unanimously support the delinking of gates and fees, and don't like many of the other, I call them the 'zany grab bag' options that were that were put out there. Then you had 30-or-so industry types, and a handful of mad professor comment letters that basically said, 'Turn them into banks, kill them all.' It was interesting to see that the split between, the industry not wanting many changes and academics wanting radical changes."

He continues, "The letters themselves, there's a ton of work that goes into them and they're really great tools for teaching people about the money fund business. I mean, it's amazing how much history and how much work you can distill out of them. When you have to run them by lawyers and the executive committee, surprisingly, you get some good stuff out of it. First off, it's sort of crazy that the government let Lehman Brothers go bankrupt after saving everything and then criticized the industry for needing support. And then, the government shut down the economy and caused this lock up and criticized people for what they did.... I love the ICI's comment, '[O]ur examination of the reform options has led us to the same conclusion the PWG apparently reached, there's no silver bullet against the severest market distress scenarios. Any new reforms for money market funds must be measured and appropriately calibrated against the costs and benefits."

Finally, Crane summarizes, "The industry really [said], 'changes are good, changes are necessary, but like last time, all you can do is throw out a series of tweaks and hope to prevent this giant major crisis.' But when the giant major crisis comes, or is foisted upon you, you know, you really need help from other segments. Fidelity was 'preserve and protect'. BlackRock's letter was 'look holistically.' They and a lot of others said, really, you need to look at the CP market, you need to look at the broader market to solve this problem.... Schwab and Vanguard abandoned the solid front [supporting a] floating NAV for retail money funds.... Wells Fargo [says] it's impossible to eliminate run risk entirely, do not threaten the viability." (See all the comment letters to the SEC here.)

As we wrote on Monday, the Investment Company Institute recently published its "2021 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund industry. We reviewed much of the money fund content in our May MFI newsletter piece, "ICI 2021 Fact Book Shows Money Fund Trends in '20," in our May 17 News, "ICI'​s 2021 Fact Book Reviews U.​S. and Worldwide Money Funds Trends," and in our May 6 Link of the Day, "ICI Publishes 2021 Fact Book." But below we focus on the numerous "Data Tables" involving "Money Market Mutual Funds, which start on page 244. ICI lists annual statistics on shareholder accounts, the number of funds, net assets, net new cash flows, paid and reinvested dividends, composition of prime and government funds, and net assets of institutional investors by type of institution. (Note: Thanks to those who attended our "Handicapping Money Fund Reforms" webinar yesterday! For those that missed it, you can see the recording here.)

ICI's annual statistics show that there's been a steady decline in the number of money market mutual funds over the last 16 years. (See Table 35 on page 244.) In 2020, according to the Fact Book, there were a total of 340 money funds, down from 364 in 2019, 802 in 2007, and down from 1,014 in 2001. The number of share classes stood at 1,108 in 2020, down from 1,126 in 2018 and 1,998 in 2008.

Table 36 on page 245, "Money Market Funds: Total Net Assets by Type of Fund," shows that total net assets in taxable U.S. money market funds increased $701.3 billion to $4.333 trillion in 2020. At year-end 2020, $2.804 trillion (64.7%) was in institutional money market funds, while $1.529 trillion (35.3%) was in retail money market funds. Breaking the numbers down by fund type, $542.9 billion (12.5%) was in prime funds, $3.685 trillion (85.0%) was in government money market funds, and $105.5 billion (2.4%) was in tax-exempt accounts.

Also, Table 37 on page 246, "Money Market Funds: Net New Cash Flow by Type of Fund," shows that there was $690.8 billion in net new cash flow into money market funds last year. A closer look at the data shows $535.5 billion in net new cash flow into institutional funds and a $155.3 billion cash inflow into retail funds. There were also $834.5 billion in net inflows into Government funds, versus $111.0 billion in net outflows from Prime funds.

Table 39 (page 248), "Money Market Funds: Paid and Reinvested Dividends by Type of Fund," shows dividends paid by money funds were $17.5 billion, $9.2 billion of which was reinvested (52.6%). Dividends have been as high as $127.9 billion in 2007 (when rates were over 5%), and as low as $5.2 billion in 2011 (when rates were 0.05%). Reinvestment rates were 64.4% in 2007 and 62.3% in 2011, so they've remained relatively stable over the past decade.

ICI's Tables 40 and 41 on pages 249 and 250, "Taxable Government Money Market Funds: Asset Composition as a Percentage of Total Net Assets" and "Taxable Prime Money Market Funds: Asset Composition," show that of the $3.685 trillion in taxable government money market funds, 17.0% were in U.S. government agency issues, 23.5% were in Repurchase agreements, 48.5% were in U.S. Treasury bills, 11.1% were in Other Treasury securities, and 0.0% was in "Other" assets. The average maturity was 49 days, up 11 days from the end of 2019.

The second table shows that of the $542.9 billion in Prime funds at year-end 2020, 25.8% was in Certificates of deposit, 30.9% was in Commercial paper, 26.3% was in Repurchase agreements, 0.4% was in US government agency issues, 4.9% was in Other Treasury securities, 0.6% was in Corporate notes, 0.2% percent was in Bank notes, 6.5% was in US Treasury bills, 0.1% was in Eurodollar CDs, and 4.2% was in Other assets (which includes Banker's acceptances, municipal securities and cash reserves).

Table 60 on page 269, "Total Net Assets of Mutual Funds Held in Individual and Institutional Accounts," shows that there was $1.627 trillion of assets in money funds with Institutional investors, and $2.706 in MMF assets in Individual accounts in 2020.

Finally, Table 62, "Total Net Assets of Institutional Investors in Taxable Money Market Funds by Type of Institution and Type of Fund," shows of the total of $1.619 trillion in Total Institutional assets ($1.508 trillion in Institutional funds and another $110.9 billion in Retail funds), $677.1 billion were held by business corporations (41.8%), $715.5 billion were held by financial institutions (44.2%), $139.8 billion were held by nonprofit organizations (8.6%), and $86.6 billion were held by Other (5.3%).

ICI also released its latest weekly "Money Market Fund Assets" report yesterday, which shows MMFs jumping in the latest week. Money fund assets are up $244 billion, or 5.7%, year-to-date in 2021. Inst MMFs are up $327 billion (11.8%), while Retail MMFs are down $83 billion (-5.4%). Over the past 52 weeks, money fund assets have decreased by $248 billion, or -5.2%, with Retail MMFs falling by $135 billion (-8.5%) and Inst MMFs falling by $114 billion (-3.5%).

ICI's "Assets" release says, "Total money market fund assets increased by $25.26 billion to $4.54 trillion for the week ended Wednesday, May 19, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $33.42 billion and prime funds decreased by $6.72 billion. Tax-exempt money market funds decreased by $1.44 billion." ICI's stats show Institutional MMFs increasing $32.7 billion and Retail MMFs decreasing $7.4 billion. Total Government MMF assets, including Treasury funds, were $3.959 trillion (87.2% of all money funds), while Total Prime MMFs were $488.8 billion (10.8%). Tax Exempt MMFs totaled $93.1 billion (2.0%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than our asset series.)

It explains, "Assets of retail money market funds decreased by $7.41 billion to $1.44 trillion. Among retail funds, government money market fund assets decreased by $2.58 billion to $1.12 trillion, prime money market fund assets decreased by $3.49 billion to $236.87 billion, and tax-exempt fund assets decreased by $1.33 billion to $83.13 billion." Retail assets account for just under a third of total assets, or 31.8%, and Government Retail assets make up 77.8% of all Retail MMFs.

ICI adds, "Assets of institutional money market funds increased by $32.67 billion to $3.10 trillion. Among institutional funds, government money market fund assets increased by $36.01 billion to $2.84 trillion, prime money market fund assets decreased by $3.23 billion to $251.95 billion, and tax-exempt fund assets decreased by $109 million to $9.95 billion." Institutional assets accounted for 68.2% of all MMF assets, with Government Institutional assets making up 91.5% of all Institutional MMF totals.

With the lifting Covid restrictions in Pennsylvania (and most places) at the end of this month, the coast appears clear for our next "big show," Money Fund Symposium, to happen in person and at full scale. Crane's Money Fund Symposium, the largest gathering of money market fund managers and cash investors in the world, is scheduled to take place September 21-23, 2021 at The Loews Hotel, in Philadelphia, Pa. The latest agenda is available and registrations are being taken. (We'll be tweaking the agenda as travel restrictions are removed in coming months.) Money Fund Symposium attracts money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators. We review the latest agenda and plans, as well as the rest of Crane Data's pending event schedule, below. (Reminder: Please join us later today, Thursday, for our "Handicapping Money Fund Reforms" webinar, which takes place from 2-3pm EDT.)

Our Money Fund Symposium Agenda kicks off on Tuesday, September 21, with a keynote on "Adapting to Regulations, Tech & ESG" from Tom Callahan of BlackRock and Deborah Cunningham of Federated Hermes. The rest of the Day 1 agenda includes: "Treasury Issuance & Repo Update," with Mark Cabana of Bank of America Securities, Joseph Abate of Barclays and Tom Katzenbach of the U.S. Treasury; a "Regulatory Scenarios & Fed Support Review" with Stephen Cohen of Dechert and Ken Anadu of Federal Reserve Bank of Boston; and, a "Major Money Fund Issues 2021" panel featuring, Tracy Hopkins of Dreyfus/BNY Mellon Cash Investment Strategies, Jeff Weaver of Wells Fargo Asset Management and Rob Sabatino of UBS Asset Management. (The evening's reception is sponsored by BofA.)

Day 2 of Money Fund Symposium 2021 begins with "The State of the Money Fund Industry," which features Peter Crane of Crane Data and Michael Morin of Fidelity Investments, followed by a "Senior Portfolio Manager Perspectives" panel, including Pia McCusker of SSGA, Nafis Smith of Vanguard, and Peter Yi of Northern Trust A.M. Next up is "Government & Treasury Money Fund Issues," with Adam Ackermann of J.P. Morgan A.M. and Geoff Gibbs of DWS. The morning concludes with a "Muni & Tax Exempt Money Fund Update," featuring Colleen Meehan of Dreyfus, John Vetter of Fidelity and Sean Saroya of J.P. Morgan Securities.

The Afternoon of Day 2 (after a Dreyfus-sponsored lunch) features the segments: "Dealer's Choice: Supply, New Securities & CP" with Robe Crowe of Citi Global Markets, John Kodweis of J.P. Morgan and Stewart Cutler of Barclays; "Ratings Focus: Governance, Global & LGIPs" with Robert Callagy of Moody's Investors Service, Greg Fayvilevich of Fitch Ratings, and Michael Masih of S&P Global Ratings; "Ultra-Short, ETFs & Alt-Cash Update," with Laurie Brignac of Invesco and Teresa Ho of JPM. The day's wrap-up presentation is "European, ESG & Corporate Issues" involving Jonathan Curry of HSBC Global A.M., Veronica Iommi of IMMFA and Tom Hunt of AFP. (The Day 2 reception is sponsored by Barclays.)

The third day of the Symposium features the sessions: "Strategists Speak '21: Fed & Rates, Repo & SOFR" with Priya Misra of TD Securities, Vanessa McMichael of Wells Fargo Securities and Alex Roever of J.P. Morgan Securities; "Brokerage Sweeps, Bank Deposits & Fin-Tech," with Chris Melin of Ameriprise Financial and Kevin Bannerton of Total Bank Solutions. The day concludes with an "FICC Repo & Agency Roundtable," featuring Kyle Lynch of FHLBanks Office of Finance and Matthew Peabody from BNY Mellon Markets; and a brief session on "Money Fund Statistics & Disclosures" run by Peter Crane.

Visit the MF Symposium website at www.moneyfundsymposium.com) for more details. Registration is $750, and discounted hotel reservations are available. Full refunds will be given for any cancels for any reason, and thanks to our sponsors for their support ... and patience. We hope you'll join us in Philadelphia this September!

We'd like to encourage attendees, speakers and sponsors not to wait for the last minute to register and make hotel reservations, but we of course understand if you need to wait for travel restrictions to ease. Note that the agenda is still being finalized, so watch for tweaks in coming weeks. E-mail us at info@cranedata.com to request the full brochure.

Also, please join us for our "Handicapping Money Fund Reforms Webinar," which takes place today at 2-3pm EDT. (Register here.) This one-hour online session will recap the latest developments involving potential future money market fund regulations. Crane Data's Peter Crane and Dechert LLP's Steve Cohen will review reports from the PWG, IOSCO and ESMA and the host of comment letters to the SEC on possible reforms. They'll discuss the latest news, the next steps and when to expect a regulatory proposal from the SEC. Watch for details on our next webinar, "Asian Money Fund Symposium," which is scheduled for June 17 (Thurs.) from 10:00am-12:00pm EDT.

Finally, mark your calendars for our next European Money Fund Symposium. It is scheduled for Oct. 21-22, 2021, in Paris, France, though we may convert this to a virtual event if Europe continues to lag in the recovery from the coronavirus. Save the date too for our next Money Fund University which is scheduled for Jan. 20-21, 2022, in Boston, Mass and our next Bond Fund Symposium, which is scheduled for Mar. 28-29, 2022 in Newport Beach, California. Let us know if you'd like more details on any of our events, and we hope to see you in Philadelphia or in Paris later in 2021!

The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets increased $46.3 billion in April to $5.040 trillion. (Month-to-date in May assets are down $15.0 billion through 5/17, according to our MFI Daily.) The SEC shows that Prime MMFs rose by $1.3 billion in April to $929.2 billion, Govt & Treasury funds increased $48.4 billion to $4.006 trillion and Tax Exempt funds decreased $3.4 billion to $104.8 billion. Yields were down again in April. 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: Don't forget to join us Thursday, May 20 (2-3pm), for our "Handicapping Money Fund Reforms" webinar!)

April's overall asset increase follows an increase of $146.1 billion in March, $30.5 billion in February and $35.4 billion in January. MMFs declined by $26.1 billion in December, increased $18.7 billion in November, and fell $73.6 billion in October, $117.8 billion in September, $57.0 billion in August, $66.4 billion in July and $127.3 billion in June. Prior to this, we saw increases of $31.0 billion in May, $461.6 billion in April and $704.8 billion in March. Over the 12 months through 4/30/21, total MMF assets have decreased by $160.2 billion, or -3.1%, according to the SEC's series. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these assets in its collections.)

The SEC's stats show that of the $5.040 trillion in assets, $929.2 billion was in Prime funds, up $1.3 billion in April. This follows an increase of $7.2 billion in March, a decrease of $29.2 billion in February, an increase of $36.4 billion in January, and decreases of $42.7 billion in December, $5.8 billion in November, $30.7 billion in October, $145.6 billion in September (when Vanguard converted its massive Prime MMF to Govt) and $7.1 billion in August. Earlier this year, we saw increases of $16.4 billion in July, $21.3 billion in June, $50.6 billion in May and $105.2 billion in April. Prime funds represented 18.4% of total assets at the end of April. They've decreased by $160.8 billion, or -14.8%, over the past 12 months.

Government & Treasury funds totaled $4.006 trillion, or 79.5% of assets. They increased $48.4 billion in April, after increasing $140.9 billion in March, $64.3 billion in February, decreasing $2.0 billion in January, increasing $19.2 billion in December, $27.7 billion in November, decreasing $41.4 billion in October, rising $35.3 billion in September and falling $49.3 billion in August and $42.6 billion in July. They plummeted $145.1 billion in June, fell $18.6 billion in May, and skyrocketed $347.3 billion in April. Govt & Treasury MMFs are up $36.9 billion over 12 months, or 0.9%. Tax Exempt Funds decreased $3.4 billion to $104.8 billion, or 2.1% of all assets. The number of money funds was 330 in April, unchanged from the previous month, and down 31 funds from a year earlier.

Yields for Taxable MMFs were down again in April. Steady declines over the past 25 months follow 25 months of straight increases. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on April 30 was 0.10%, down two basis points from the previous month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 0.16%, down a basis point. Gross yields were 0.07% for Government Funds, down a basis point from last month. Gross yields for Treasury Funds were also down a basis point at 0.06%. Gross Yields for Muni Institutional MMFs were flat at 0.09% in April. Gross Yields for Muni Retail funds were also flat at 0.13% in April.

The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 0.06%, down a basis point from the previous month and down five basis points since 12/31/20. The Average Net Yield for Prime Retail Funds was 0.02%, unchanged from the previous month, and down a basis point since 12/31/20. Net yields were 0.02% for Government Funds, unchanged from last month. Net yields for Treasury Funds were also unchanged from the previous month at 0.01%. Net Yields for Muni Institutional MMFs were down a basis point from March at 0.03%. Net Yields for Muni Retail funds were unchanged at 0.01% in April. (Note: These averages are asset-weighted.)

WALs and WAMs largely down in April. The average Weighted Average Life, or WAL, was 58.2 days (unchanged from last month) for Prime Institutional funds, and 48.6 days for Prime Retail funds (down 2.7 days). Government fund WALs averaged 88.6 days (down 3.5 days) while Treasury fund WALs averaged 91.1 days (down 4.1 days). Muni Institutional fund WALs were 12.8 days (down 1.5 days from the previous month), and Muni Retail MMF WALs averaged 22.8 days (down 3.4 days).

The Weighted Average Maturity, or WAM, was 41.2 days (up 1.3 days from the previous month) for Prime Institutional funds, 41.1 days (down 3.3 days from the previous month) for Prime Retail funds, 40.7 days (down 2.5 days) for Government funds, and 43.7 days (down 2.8 days) for Treasury funds. Muni Inst WAMs were down 1.1 days to 12.4 days, while Muni Retail WAMs decreased 3.2 days to 21.9 days.

Total Daily Liquid Assets for Prime Institutional funds were 50.8% in April (down 0.8% from the previous month), and DLA for Prime Retail funds was 30.9% (down 2.8% from previous month) as a percent of total assets. The average DLA was 70.1% for Govt MMFs and 95.5% for Treasury MMFs. Total Weekly Liquid Assets was 63.2% (up 0.6% from the previous month) for Prime Institutional MMFs, and 44.2% (up 0.2% from the previous month) for Prime Retail funds. Average WLA was 84.0% for Govt MMFs and 99.4% for Treasury MMFs.

In the SEC's "Prime Holdings of Bank-Related Securities by Country table for April 2021," the largest entries included: Canada with $101.5 billion, France with $81.9 billion, Japan with $70.7 billion, the U.S. with $55.3B, Germany with $39.0B, the U.K. with $37.3B, the Netherlands with 35.2B, Aust/NZ with $26.1B and Switzerland with $16.3B. The biggest gainers among the "Prime MMF Holdings by Country" were: the U.K. (up $5.9 billion), France (up $4.1B), Germany ($3.0B) and Japan (up $1.5B). The biggest decreases were: The U.S. (down $8.5B), Canada (down $8.4B), the Netherlands (down $5.0B), Aust/NZ (down $2.8B) and Switzerland (down $1.0B).

The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows Europe had $112.2B (up $13.4B from last month), the Eurozone subset had $174.8B (up $8.5B). The Americas had $156.9 billion (down $17.1B), while Asia Pacific had $110.5B (down $2.9B).

The "Prime MMF Aggregate Product Exposures" chart shows that of the $922.2B billion in Prime MMF Portfolios as of April 30, $329.0B (35.7%) was in Government & Treasury securities (direct and repo) (down from $346.1B), $233.1B (25.3%) was in CDs and Time Deposits (up from $216.6B), $189.9B (20.6%) was in Financial Company CP (up from $189.0B), $128.4B (13.9%) was held in Non-Financial CP and Other securities (up from $127.8B), and $41.8B (4.5%) was in ABCP (unchanged $41.8B).

The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $183.5 billion, Canada with $160.1 billion, France with $207.3 billion, the U.K. with $86.3 billion, Germany with $25.6 billion, Japan with $152.3 billion and Other with $41.6 billion. All MMF Repo with the Federal Reserve was up $54.5 billion in April at $179.8 billion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 7.8%, Prime Retail MMFs with 4.5%, Muni Inst MMFs with 0.6%, Muni Retail MMFs with 2.6%, Govt MMFs with 14.0% and Treasury MMFs with 14.4%.

The SEC recently released its quarterly "Private Funds Statistics" report, which summarizes Form PF reporting and includes some data on "Liquidity Funds," or pools which are similar to but not money market funds. The publication shows overall Liquidity fund assets were up in the latest reported quarter (Q3'20) to $639 billion (up from $600 billion in Q2'20). The SEC's "Introduction" tells us, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers. This report reflects data from Fourth Calendar Quarter 2018 through Third Calendar Quarter 2020 as reported by Form PF filers." (Note: Crane Data believes the largest portion of these liquidity fund assets are securities lending reinvestment pools.)

The tables in the SEC's "Private Funds Statistics: Third Calendar Quarter 2020," with the most recent data available, show 116 Liquidity Funds (including "Section 3 Liquidity Funds," which are Liquidity Funds from advisers with over $1 billion total in cash), up 4 from last quarter and down 3 from a year ago. (There are 69 Liquidity Funds and 47 Section 3 Liquidity Funds.) The SEC receives Form PF reports from 38 Liquidity Fund advisers and 23 Section 3 Liquidity Fund advisers, or 61 advisers in total, up 2 from last quarter (up 1 from a year ago).

The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $639 billion, up $39 billion from Q2'20 and up $51 billion from a year ago (Q3'19). Of this total, $321 billion is in normal Liquidity Funds while $318 billion is in Section 3 (large manager) Liquidity Funds. The SEC's table on "Aggregate Private Fund Gross Asset Value" shows total Liquidity Fund assets at $652 billion, up $41 billion from Q2'20 and up $59 billion from a year ago (Q3'19). Of this total, $328 billion is in normal Liquidity Funds while $324 billion is in Section 3 (large manager) Liquidity Funds.

A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $55 billion is held by Private Funds (17.3%), $77 billion is held by Unknown Non-U.S. Investors (24.1%), $93 billion is held by Other (29.2%), $18 billion is held by SEC-Registered Investment Companies (5.7%), $10 billion is held by Insurance Companies (3.2%) and $3 billion is held by Non-U.S. Individuals (0.8%).

The tables also show that 72.7% of Section 3 Liquidity Funds have a liquidation period of one day, $302 billion of these funds may suspend redemptions, and $273 billion of these funds may have gates. WAMs average a short 31 days (42 days when weighted by assets), WALs are 52 days (60 days when asset-weighted), and 7-Day Gross Yields average 0.20% (0.20% asset-weighted). Daily Liquid Assets average about 55% (55% asset-weighted) while Weekly Liquid Assets average about 62% (62% asset-weighted). Overall, these portfolios appear shorter with a heavier Treasury exposure than money market funds in general; almost half of them (48.9%) are fully compliant with Rule 2a-7. When calculating NAVs, 74.5% are "Stable" and 25.5% are "Floating."

In other news, Crane Data's latest MFI International shows that assets in European or "offshore" money market mutual funds inched higher over the last month to $1.011 trillion, following a slight rise in March. These U.S.-style funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, increased by $12.3 billion over the last 30 days (through 5/14); they're down $48.3 billion (-4.6%) year-to-date. Offshore US Dollar money funds, which broke over $500 billion in January 2020, inched up $1.6 billion over the last 30 days and are down $6.5 billion YTD to $529.2 billion. Euro funds are down E4.7 billion over the past month, and YTD they're down E27.6 billion to E129.8 billion. GBP money funds have fallen by L3.4 billion over 30 days, and are down by L22.8 billion YTD to L233.8B. U.S. Dollar (USD) money funds (193) account for half (50.6%) of the "European" money fund total, while Euro (EUR) money funds (94) make up 16.5% and Pound Sterling (GBP) funds (116) total 29.4%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers last Friday), below.

Offshore USD MMFs yield 0.03% (7-Day) on average (as of 05/14/21), down from 1.59% on 12/31/19 and 2.29% at the end of 2018. EUR MMFs yield -0.66% on average, compared to -0.59% at year-end 2019 and -0.49% on 12/31/18. Meanwhile, GBP MMFs yielded 0.01%, down from 0.64% as of 12/31/19 and 0.64% at the end of 2018. (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 March MFII Portfolio Holdings, with data as of 04/30/21, show that European-domiciled US Dollar MMFs, on average, consist of 24.1% in Commercial Paper (CP), 17.8% in Certificates of Deposit (CDs), 10.2% in Repo, 31.3% in Treasury securities, 15.5% in Other securities (primarily Time Deposits) and 1.0% in Government Agency securities. USD funds have on average 28.9% of their portfolios maturing Overnight, 9.7% maturing in 2-7 Days, 15.1% maturing in 8-30 Days, 13.6% maturing in 31-60 Days, 14.1% maturing in 61-90 Days, 12.5% maturing in 91-180 Days and 6.1% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (37.8%), France (14.0%), Japan (7.5%), Canada (7.3%), Sweden (7.1%), Germany (4.3%), the U.K. (3.7%), the Netherlands (3.4%), Norway (2.4%) and Belgium (2.3%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $174.4 billion (31.3% of total assets), Credit Agricole with $16.7B (3.0%), Skandinaviska Enskilda Banken AB with $13.5B (2.4%), Societe Generale with $12.6B (2.3%), DNB ASA with $12.1B (2.2%), KBC Group NV with $11.9B (2.1%), Svenska Handelsbanken with $11.9B (2.1%), Mizuho Corporate Bank Ltd with $11.6B (2.1%), Toronto-Dominion Bank with $11.2B (2.0%) and Barclays PLC with $10.6B (1.9%).

Euro MMFs tracked by Crane Data contain, on average 37.5% in CP, 19.5% in CDs, 25.3% in Other (primarily Time Deposits), 12.4% in Repo, 4.7% in Treasuries and 0.5% in Agency securities. EUR funds have on average 25.8% of their portfolios maturing Overnight, 13.2% maturing in 2-7 Days, 13.4% maturing in 8-30 Days, 13.8% maturing in 31-60 Days, 14.7% maturing in 61-90 Days, 15.7% maturing in 91-180 Days and 3.3% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (36.2%), Japan (11.8%), the U.S. (10.7%), Sweden (6.7%), Switzerland (5.5%), Germany (5.4%), the U.K. (3.9%), Canada (3.5%), Belgium (3.1%) and Supranational (2.8%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E10.6B (8.7%), Societe Generale with E6.1B (5.0%), BPCE SA with E6.0B (4.9%), BNP Paribas with E6.0B (4.9%), Republic of France with EB E4.4B (3.6%), Zürcher Kantonalbank with E4.2B (3.4%), Svenska Handelsbanken with E4.1B (3.4%), Citi with E4.0B (3.3%), Sumitomo Mitsui Banking Corp with E3.9B (3.2%) and JP Morgan with E3.8B (3.1%).

The GBP funds tracked by MFI International contain, on average (as of 04/30/21): 38.9% in CDs, 20.9% in CP, 18.7% in Other (Time Deposits), 17.0% in Repo, 4.4% in Treasury and 0.2% in Agency. Sterling funds have on average 2.3% of their portfolios maturing Overnight, 37.2% maturing in 2-7 Days, 9.6% maturing in 8-30 Days, 12.7% maturing in 31-60 Days, 13.7% maturing in 61-90 Days, 18.2% maturing in 91-180 Days and 6.4% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: the U.K. (19.3%), France (18.6%), Japan (14.9%), Canada (10.4%), the U.S. (5.6%), Sweden (5.1%), the Netherlands (4.2%), Australia (3.7%), Switzerland (3.7%), and Spain (3.0%).

The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L19.7B (9.7%), Mizuho Corporate Bank Ltd with L8.7B (4.3%), Mitsubishi UFJ Financial Group Inc with L8.1B (4.0%), BNP Paribas with L7.4B (3.7%), BPCE SA with L7.4B (3.6%), Agence Central de Organismes de Securite Sociale with L7.2B (3.6%), Sumitomo Mitsui Banking Corp with L7.0B (3.4%), RBC with L6.9B (3.4%), Standard Chartered Bank with L6.3B (3.1%) and Banco Santander with LB 6.0 (3.0%).

As we covered in the May issue of our Money Fund Intelligence, the Investment Company Institute recently released its "2021 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund industry. Subtitled, "A Review of Trends and Activities in the Investment Company Industry," the latest edition reports that equity funds increased, bond fund inflows rose, and money market funds saw their assets skyrocket in 2020. Overall, money funds assets were $4.333 trillion at year-end 2020, making up 18% of the $23.9 trillion in overall mutual fund assets. Retail investors held $1.529 trillion, while institutional investors held $2.804 trillion. We excerpt from the latest "Fact Book" below. (Reminder: Please join us Thursday, May 20 (2-3pm), for our "Handicapping Money Fund Reforms" webinar.)

ICI writes, "Worldwide net sales of money market funds in 2020 totaled $1.3 trillion, compared with net sales of $706 billion in 2019.... The majority of inflows into money market funds in 2020 occurred in the United States, where money market funds saw inflows of $700 billion. However, the majority of the growth in net sales of money market funds came from Europe and the Asia-Pacific region. In Europe, money market funds experienced inflows of $250 billion in 2020, up sharply from $70 billion in 2019, and Asia-Pacific money market funds received $302 billion in inflows in 2020, a significant increase from $30 billion in 2019. The rest of the world received $43 billion in net sales in 2020, more than double the $20 billion in 2019."

They explain, "Generally, the demand for money market funds depends on their performance and interest rate risk exposure. As the difference between yields on short-term fixed-income securities and yields on long-term fixed-income securities narrows, money market funds tend to experience inflows because investors can reduce interest rate risk without sacrificing much yield by using a fund with a short duration."

The Fact Book continues, "As yield curves globally flattened or further inverted during the first quarter of 2020, investors typically would have exhibited a strong demand for short-term assets in general, such as short-term bond funds and money market funds. However, the increasing expectation of significant economic fallout brought on by the COVID-19 pandemic during the first quarter of 2020 led many investors to seek high-quality, short-term investments to preserve and build liquidity. As a result, government money market funds, especially those that invested in US government securities, were a popular investment."

ICI tells us, "Businesses and other institutional investors also rely on funds. For instance, institutions can use money market funds to manage some of their cash and other short-term assets. At year-end 2020, nonfinancial businesses held 20 percent, or $1.0 trillion, of their short-term assets in money market funds." (This is up from 18 percent in 2019, but down from 22 percent in 2013 and down from the peak of 40 percent in 2008.)

In its section (p. 88) on "Money Market Funds," the Fact Book states, "In 2020, money market funds received $691 billion in net new cash flows, up from $553 billion in 2019.... Government money market funds received substantial inflows ($835 billion) while prime money market funds and tax-exempt money market funds had outflows of $111 billion and $33 billion, respectively."

It adds, "Demand for government money market funds in March and April 2020 was shaped by the efforts of businesses, households, and governments to preserve or build liquidity. As market volatility and investor uncertainty peaked in March, investors of all types used government money market funds, which primarily hold securities issued by the US Treasury, to help them preserve liquidity."

ICI says, Government money market funds experienced inflows of $834 billion in March, followed by additional inflows of $342 billion in April. From May through December, government money market funds had outflows of $338 billion. Even though financial markets became significantly calmer after April, the bulk of the cash that flooded into government money market funds remained."

The section continues, "Meanwhile, prime money market funds experienced outflows of $139 billion in March 2020, 17.6 percent of their net assets at the end of February. In particular, institutional prime money market funds had outflows of $91 billion (29.1 percent of their total net assets at the end of February) and retail prime money market funds had outflows of $48 billion (10.1 percent of their total net assets at the end of February). A combination of factors may have contributed to these outflows. Investor demand for safe, liquid assets meant that some of the outflows from prime money market funds may have moved into government money market funds."

The Fact Book comments, "The 2014 reforms from the Securities and Exchange Commission (SEC) may also have played a role; for example, they granted funds the option to impose fees or gates on redemptions if their weekly liquid assets dropped below the 30 percent regulatory minimum. As weekly liquid assets of some institutional prime money market funds approached the 30 percent threshold, the pace of outflows accelerated because of the risk that a fund could impose a liquidity fee or redemption gate. Toward the end of March 2020, the Federal Reserve established a range of facilities to lend to virtually every sector of the economy, including to money market funds through the Money Market Fund Liquidity Facility. These facilities eased pressures on short-term credit markets and money market funds, and outflows from prime money market funds reversed. In April, prime money market funds experienced inflows of $49 billion, followed by inflows of $46 billion in May."

Finally, they write, "In March 2020, the Federal Reserve lowered the federal funds target rate twice. By the end of April, the federal funds rate was hovering at a little more than zero, and net yields on prime and government money market funds—which closely track short-term interest rates—had dropped significantly.... By year-end 2020, government money market fund net yields were 0.01 percent and prime money market fund net yields were 0.03 percent. To keep net yields above zero in 2020, many advisers reinstituted the expense waivers they had provided to their money market funds during the ultralow interest rate environment from 2009 through 2015. Consequently, the expenses waived by money market funds increased sharply from an estimated $1.2 billion in 2019 to an estimated $3.1 billion in 2020."

The May issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the lead story, "BNY Mellon Files for Ultra-Short ETF; Short ETFs Hot," which covers launches in the bond ETF space; and "ICI's 2021 Fact Book Reviews '20 Bond Fund Trends, Flows," which highlights bond fund sections from the latest ICI Fact Book. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns jumped while yields fell in April. We excerpt from the new issue below. (Note: Please join us next week for our "Handicapping Money Fund Reforms" webinar, which will take place Thursday, May 20 from 2-3pm Eastern.)

BFI's "Ultra-Short and ETF" piece reads, "A new SEC filing for BNY Mellon Launching Ultra Short ETF is the latest sign of interest in the ultra-short and ETF space. We've seen a number of launches and announcements over the past year, including Vanguard Ultra-Short Bond ETF and Federated Hermes Conservative Microshort Fund. We've even seen launches in Europe and in the ESG space like Amundi's Euro Ultra-Short Maturity Corporate Bond ESG ETF, and we've seen plenty of other ETF launches, like Fidelity Investment Grade Bond ETF and John Hancock Corporate Bond ETF. (See also our February BFI, 'Launches in Ultra-Short Space Indicate Sector Heating Up.')"

BNY's filing tells us, "The fund seeks high current income consistent with the maintenance of liquidity and low volatility of principal." It will invest in "investment grade, U.S. dollar denominated fixed, variable, and floating rate debt or cash equivalents," including: corporates; ABS, repo; CP, CDs, BAs and TDs; U.S. Treasury securities and Agencies. "The fund's portfolio ... will have an average credit rating of A or equivalent [and its] investments, at the time of purchase, will have a minimum short-term credit rating of P-2, A-2 or F2."

Our Fact Book article explains, "The Investment Company Institute recently published its '2021 Investment Company Fact Book,' which contains a review of the bond fund marketplace in 2020 and a wealth of statistics on bond funds. They write, "Combined net sales of bond funds and mixed/other funds have generally been strong over the past decade ... which can partially be explained by the aging of the global population.... Because returns on bonds tend to be less variable than those on stocks, returns on bond funds ... tend to be less variable than those of equity funds."

ICI's section on "Bond Mutual Funds" (on page 76) explains, "Bond mutual fund net new cash flows typically are correlated with the performance of US bonds ... which, in turn, is largely driven by the US interest rate environment. Long-term interest rates fell sharply in the first quarter of 2020 and finished the year substantially lower than they were at the beginning of the year.... For the year as a whole, the total return on US bonds was 8 percent."

A News brief, "Returns Jump, Yields Fall In April," tells readers, "Bond fund returns rebounded and yields fell last month. Our BFI Total Index rose 0.57% in 1-month and 6.82% in 12 mos. The BFI 100 rose 0.65% in April and 5.93% over 1 year. Our BFI Conservative UltraShort Index was up 0.03% over 1-mo and 1.42% over 1-yr; Ultra-Shorts averaged 0.07% in April and 3.13% over 12 mos. Short-Term increased 0.30% and 5.14%, and Intm-Term rose 0.58% last month and 4.36% over 1-year. BFI's Long-Term Index jumped 0.66% in April and 4.24% over 1- year. Our High Yield Index jumped 0.89% in April and 17.07% over 1-year."

Another News brief quotes the Federal Reserve's "May Financial Stability Report." It writes, "Mutual funds that invest substantially in corporate bonds and bank loans may be particularly exposed to liquidity transformation risks.... U.S. corporate bonds held by mutual funds increased substantially to $1.8 trillion in [Q4] 2020, well above prepandemic levels and about one-sixth of outstanding U.S. corporate bonds…. The record outflows in March 2020 from mutual funds ... highlighted the structural vulnerabilities in the sector, because some were forced to sell assets even when the corresponding markets were illiquid. Since then, mutual funds have benefited from sizable overall inflows amid improved investor sentiment and ... emergency credit facilities."

A third News update covers, Federated Hermes Q1'21 Earnings Call. It begins, "President & CEO, Christopher Donahue, comments, 'Turning to fixed income, assets reached another record high of $86 billion at the end of the first quarter, up more than $2 billion from year-end and up $22 billion, or 34%, since the first quarter of last year. The Q1 growth was again driven by strong net sales of just under $3 billion.... Q1 net fund sales leaders were ultra-short bond fund was about $1.6 billion, the multi-sector total return bond and short intermediate total return ... combined for nearly $600 million, and continued strong results in high yield was nearly $400 million.'"

Finally, another News piece, entitled, "Morningstar Writes 'Pulling Back the Curtain on the 'People Pillar' Rating of Bond Funds," tells us, "Measuring the strength and weakness of an investment team is one of the core responsibilities of Morningstar's Manager Research team. Good investment teams are appropriately staffed for the strategies they manage, demonstrate good judgment over time, and act in the best interests of their clients. A poor investment team may be mis-staffed, misaligned, or misbehaving. The difference can have a material impact on investment outcomes. Indeed, the People Pillar rating is an integral part of the Morningstar Analyst Rating.... So, let's take a deep dive through the People Pillar rating, especially as it relates to bond funds.”

Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data. Also, mark your calendars for next year's Bond Fund Symposium, which is scheduled for March 28-29, 2022, in Newport Beach, Calif.

Bank of England Governor Andrew Bailey spoke yesterday on "Taking our second chance to make MMFs more resilient," at a virtual meeting of ISDA, the International Swaps and Derivatives Association. Bailey says, "You may be relieved to hear that I am not going to talk about Libor today.... Instead, I am going to speak about another important part of our current work and a priority for the global Financial Stability Board (FSB), namely Money Market Funds (MMFs). The FSB analysed last March's so-called 'dash for cash' in their Holistic Review published at the end of last year, highlighting a number of vulnerabilities in non-bank finance and setting out some considerations for reforms required to tackle the issues we saw in that episode.... MMFs were one of the issues at the top of that list. MMFs also played a role in amplifying the stress we saw during the Global Financial Crisis, so this is the second time they have proven not to be sufficiently resilient. I plan, therefore, to set out my views today on the reforms required to solve these issues. We are committed to working with others internationally, through the FSB, to avoid history repeating itself yet again." (Note: Register here for our next webinar, "Handicapping Money Fund Reforms," next Thursday, May 20, from 2-3pm EDT.)

The speech, which likely won't go over well with U.S. investors and money fund providers, gives some background and lessons from March 2020, then discusses "Reforms to make MMFs more resilient." Bailey explains, "It is clear from experience that money market funds as currently structured may often be perceived as cash-like, but cannot make good on this expectation in a sufficiently wide range of market conditions, and so can contribute to stress in short-term funding markets. The objective must be to improve the resilience and functioning of MMFs to protect the stability of the financial system. In doing so, it is also important to recognise that the reforms after the financial crisis did not tackle this issue conclusively. I should note that the remaining vulnerabilities in non-bank finance are perhaps the exception, as on the whole the post-crisis reforms have left a financial system that has stood up well to the acute stress of the Covid period."

He continues, "In order to create a framework for reforms, it is important to set out clearly the principles that should shape the changes. The following principles -- while not intended as prescriptive rules – are I think helpful in this respect: [1] As a general principle for all funds -- investment and money market -- redemption terms should be aligned with the underlying liquidity of assets. [2] Where investors regard funds as cash-like, they should be made resilient so they can operate as such at all times, which means running minimal maturity mismatch risk. [3] Money market funds should not hold less liquid assets on a scale that would make them more suitable to be traditional investment funds. [4] Money market funds should not be designed with regulatory thresholds or cliff-edges which create adverse incentives and amplify first-mover advantage behaviour. [5] Reforms should improve the ability of funds to support short-term funding markets, including by making them more resilient."

Bailey elaborates, "These principles may sound obvious; indeed, I hope they do. But I would emphasise that they are not obvious in the sense that the current landscape is some way from meeting these principles. I think there are three big picture changes which follow from these principles, and should form the basis of the necessary reforms. I will set out each of them, and then discuss the issues that arise from them."

He says, "First, we should remove the adverse incentives introduced by the liquidity thresholds related to the use of suspensions, gates and redemption fees. Second, we should simplify the landscape to make clearer the critical distinction between cash-like funds and investment funds. We should remove the ambiguity of intermediate descriptions such as low volatility funds. Third, and to support removing the ambiguity, it will be important to define in an accounting and substantive sense more explicitly what constitutes cash-like. Current guidance leaves a lot of judgement to managers and auditors to make these decisions on a fund by fund basis."

He continues, "Money-market funds are a cash management instrument, so it may seem odd that the meaning of cash-like as a term has not been well defined. The resultant ambiguity may have seemed convenient as a means to stretch the boundary of the definition to allow less liquid instruments in, but when a stress event like the dash for cash happens, the flaw is badly exposed and financial stability is in jeopardy. The authorities then have to intervene in scale to restore well-functioning markets, but that should not be the accepted way to run the system."

Bailey asks, "So, what reforms are required to establish money market funds as cash-like without ambiguity? The first thing to say is that no single reform will solve things on its own. We must identify a coherent package of reforms that address the current vulnerabilities in the money market fund sector. It is easiest to describe three broad approaches to illustrate the potential options available that could deliver this objective. These are intentionally somewhat stylistic, to draw out the trade-offs we face in addressing these issues."

He speculates, "First, at one extreme, asset holdings could be limited to government instruments. Given the low risk and liquid nature of these instruments, run risk would be materially reduced. The existing size of the sterling T-bill and gilt repo markets may, however, limit the extent to which this solution would be achievable in sufficient scale to meet the needs of sterling investors, at least in the near term. And this would of course also have significant implications for the funding of banks."

Bailey explains, "Second, at the other extreme, the liquidity mismatch could be removed by making funds non-daily dealing -- i.e. not cash on demand. This would require a term notice period. Such a fund would be somewhat like a term deposit with no break clause. This would fundamentally change the potential uses for which MMFs could be held, and so would also have repercussions for the demand for other instruments, such as bank deposits, the implications of which would require further consideration."

He says, "Third, there may be a middle option whereby a combination of measures are used to reduce the risks to a sufficiently low level. We have a menu of options to choose from. For instance, a limit could be introduced on the percentage of assets a money market fund could hold in non-government instruments, to reduce the holding of less liquid assets. This could be combined with making sure funds are structured as variable net asset value, albeit with this asset mix the variability of the value in the fund should be lessened. And we would need to ensure the absence of regulatory cliff-edges, so that funds could be more confident to release their cash buffers in times of stress to meet withdrawals. Run risk would be reduced but not eliminated, and it would be more likely that in a stress funds could sell a so-called vertical (representative) slice of their assets. This is important for an agency-form collective investment structure. There may though still be some first mover advantage to exit in this structure, so great care would be needed to design it in a way which doesn't fall foul of the familiar issues missed by the post financial crisis reforms."

The Governor adds, "Each of the three options I have just outlined may not be mutually exclusive. Properly differentiated, there may be a role for funds of each of these types, to suit the needs of the diverse set of existing MMF investors. We may end up with some MMFs becoming more cash-like and some less cash-like, but we need to avoid the muddy middle."

Finally, Bailey tells the ISDA gathering, "In conclusion, we are very much in the world of having a second chance to deal with the issue of how to structure money market funds consistent with their role. The FSB will shortly be consulting on what reforms would be most appropriate. The Bank of England remains very supportive of the work being taken forward by the FSB and under the Italian G20 presidency. Given the cross-border nature of MMFs, it is important we work together internationally to ensure that we are aligned in our objectives, and adhering to common principles, even if the precise implementation varies a little to reflect the specific nature of each jurisdiction’s markets. The dash for cash provided an unwelcome reminder that the post financial crisis did not finish the job and left a dangerous gap in our exposure to the risk of financial instability. We must finish the task this time."

Crane Data's May Money Fund Portfolio Holdings, with data as of April 30, 2021, show big increases in Repo and Other/Time Deposits, but big drops in Treasuries and Agencies. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) rose $29.1 billion to $4.917 trillion in April, after jumping $187.5 billion in March and increasing $34.3 billion in February. Treasury securities remained the largest portfolio segment, followed by Repo, then Agencies. CP remained fourth, ahead of CD , Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics.

Among taxable money funds, Treasury securities fell $29.6 billion (-1.2%) to $2.541 trillion, or 51.7% of holdings, after jumping $142.8 billion in March and decreasing $42.6 billion in February. Repurchase Agreements (repo) increased by $54.1 billion (4.6%) to $1.238 billion, or 25.2% of holdings, after increasing $108.3 billion in March and $79.7 billion in February. Government Agency Debt decreased by $15.8 billion (-2.6%) to $586.1 billion, or 11.9% of holdings, after decreasing $35.1 billion in March and $13.4 billion in February. Repo, Treasuries and Agencies totaled $4.365 trillion, representing a massive 88.8% of all taxable holdings.

Money funds' holdings of CP, CDs, Other (mainly Time Deposits) and VRDNs all saw increases in April. Commercial Paper (CP) increased $2.4 billion (0.9%) to $268.0 billion, or 5.5% of holdings, after increasing $3.1 billion in March and $3.8 billion in February. Certificates of Deposit (CDs) rose by $6.5 billion (4.8%) to $142.4 billion, or 2.9% of taxable assets, after increasing $4.1 billion in March and decreasing $9.6 billion in February. Other holdings, primarily Time Deposits, increased $11.5 billion (10.0%) to $126.1 billion, or 2.6% of holdings, after decreasing $35.3 billion in March and increasing $16.5 billion in February. VRDNs increased to $15.9 billion, or 0.3% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately late Wednesday.)

Prime money fund assets tracked by Crane Data were up at $910.0 billion, or 18.5% of taxable money funds' $4.917 trillion total. Among Prime money funds, CDs represent 15.7% (up from 14.9% a month ago), while Commercial Paper accounted for 29.5% (up from 29.2%). The CP totals are comprised of: Financial Company CP, which makes up 20.6% of total holdings, Asset-Backed CP, which accounts for 4.5%, and Non-Financial Company CP, which makes up 4.4%. Prime funds also hold 3.8% in US Govt Agency Debt, 19.9% in US Treasury Debt, 8.5% in US Treasury Repo, 0.5% in Other Instruments, 9.9% in Non-Negotiable Time Deposits, 5.7% in Other Repo, 3.1% in US Government Agency Repo and 0.8% in VRDNs.

Government money fund portfolios totaled $2.734 trillion (55.6% of all MMF assets), up from $2.706 trillion in March, while Treasury money fund assets totaled another $1.274 trillion (25.9%), up from $1.273 trillion the prior month. Government money fund portfolios were made up of 20.2% US Govt Agency Debt, 14.3% US Government Agency Repo, 47.4% US Treasury Debt, 17.6% in US Treasury Repo, 0.2% in VRDNs, 0.1% in Other Instruments and 0.3% in Investment Company. Treasury money funds were comprised of 83.5% US Treasury Debt and 16.4% in US Treasury Repo. Government and Treasury funds combined now total $4.008 trillion, or 81.5% of all taxable money fund assets.

European-affiliated holdings (including repo) increased by $48.8 billion in April to $689.2 billion; their share of holdings rose to 14.0% from last month's 13.5%. Eurozone-affiliated holdings increased to $475.5 billion from last month's $444.1 billion; they account for 9.7% of overall taxable money fund holdings. Asia & Pacific related holdings increased to $241.7 billion (4.9% of the total) from last month's $230.5 billion. Americas related holdings decreased $37 billion to $3.981 trillion and now represent 81.0% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $68.9 billion, or 9.9%, to $767.9 billion, or 15.6% of assets); US Government Agency Repurchase Agreements (down $13.8 billion, or -3.2%, to $418.3 billion, or 8.5% of total holdings), and Other Repurchase Agreements (down $1.0 billion, or -2.0%, from last month to $51.8 billion, or 1.1% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $1.1 billion to $187.7 billion, or 3.8% of assets), Asset Backed Commercial Paper (down $0.2 billion to $40.8 billion, or 0.8%), and Non-Financial Company Commercial Paper (up $1.5 billion to $39.6 billion, or 0.8%).

The 20 largest Issuers to taxable money market funds as of April 30, 2021, include: the US Treasury ($2,542.7 billion, or 51.7%), Federal Home Loan Bank ($337.3B, 6.9%), Federal Reserve Bank of New York ($179.7B, 3.7%), BNP Paribas ($116.9B, 2.4%), RBC ($114.5B, 2.3%), Fixed Income Clearing Co ($111.3B, 2.3%), Federal Farm Credit Bank ($96.3B, 2.0%), Federal National Mortgage Association ($88.1B, 1.8%), JP Morgan ($78.8B, 1.6%), Credit Agricole ($78.2B, 1.6%), Barclays ($71.2B, 1.4%), Federal Home Loan Mortgage Co ($61.0B, 1.2%), Mitsubishi UFJ Financial Group Inc ($59.7B, 1.2%), Bank of America ($57.2B, 1.2%), Sumitomo Mitsui Banking Co ($55.7B, 1.1%), Societe Generale ($49.9B, 1.0%), Citi ($45.5B, 0.9%), Canadian Imperial Bank of Commerce ($39.2B, 0.8%), Nomura ($37.4B, 0.8%) and Bank of Montreal ($35.0B, 0.7%).

In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Federal Reserve Bank of New York ($179.7B, 14.5%), Fixed Income Clearing Corp ($111.3B, 9.0%), BNP Paribas ($104.1B, 8.4%), RBC ($95.0B, 7.7%), JP Morgan ($70.2B, 5.7%), Credit Agricole ($59.2B, 4.8%), Bank of America ($53.4B, 4.3%), Barclays PLC ($52.5B, 4.2%), Mitsubishi UFJ Financial Group Inc ($45.8B, 3.7%) and Sumitomo Mitsui Banking Corp ($43.5B, 3.5%).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: RBC ($19.5B, 4.2%), Mizuho Corporate Bank Ltd ($19.2B, 4.1%), Credit Agricole ($19.0B, 4.1%), Barclays PLC ($18.8B, 4.1%), Toronto-Dominion Bank ($18.1B, 3.9%), Skandinaviska Enskilda Banken AB ($16.6B, 3.6%), Federated ($16.5B, 3.6%), Bank of Montreal ($15.7B, 3.4%), DNB ASA ($15.5B, 3.4%) and Canadian Imperial Bank of Commerce ($15.3B, 3.3%).

The 10 largest CD issuers include: Bank of Montreal ($11.7B, 8.2%), Toronto-Dominion Bank ($9.2B, 6.5%), Sumitomo Mitsui Banking Corp ($8.9B, 6.2%), Canadian Imperial Bank of Commerce ($8.8B, 6.2%), Sumitomo Mitsui Trust Bank ($8.2B, 5.8%), Mitsubishi UFJ Financial Group Inc ($8.0B, 5.6%), Mizuho Corporate Bank Ltd ($7.7B, 5.4%), Skandinaviska Enskilda Banken AB ($5.9B, 4.2%), Landesbank Baden-Wurttemberg ($5.8B, 4.0%) and Credit Agricole ($4.8B, 3.4%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($11.9B, 5.3%), BNP Paribas ($9.4B, 4.6%), Societe Generale ($9.4B, 4.2%), Credit Suisse ($8.8B, 3.9%), Barclays PLC ($8.8B, 3.9%), JP Morgan ($8.5B, 3.8%), Toronto-Dominion Bank ($7.4B, 3.3%), BPCE SA ($7.1B, 3.2%), DNB ASA ($6.9B, 3.1%) and NRW.Bank ($6.7B, 3.0%).

The largest increases among Issuers include: Federal Reserve Bank of New York (up $54.4B to $179.7B), Credit Agricole (up $17.9B to $78.2B), Barclays PLC (up $12.6B to $71.2B), Sumitomo Mitsui Banking Corp (up $8.2B to $55.7B), Deutsche Bank AG (up $6.4B to $17.5B), Societe Generale (up $6.3B to $49.9B), DNB ASA (up $6.0B to $19.3B), Credit Suisse (up $4.8B to $16.5B), Skandinaviska Enskilda Banken AB (up $3.1B to $16.6B) and Mizuho Corporate Bank Ltd (up $2.6B to $27.0B).

The largest decreases among Issuers of money market securities (including Repo) in April were shown by: US Treasury (down $27.7B to $2,542.7B), JP Morgan (down $13.8B to $78.8B), Fixed Income Clearing Corp (down $10.1B to $111.3B), Federal Home Loan Mortgage Corp (down $9.5B to $61.0B), Wells Fargo (down $9.1B to $12.4B), Goldman Sachs (down $8.0B to $28.9B), Citi (down $5.3B to $45.5B), BNP Paribas (down $5.0B to $116.9B), Federal National Mortgage Association (down $4.2B to $88.1B) and Bank of Montreal (down $3.5B to $35.0B).

The United States remained the largest segment of country-affiliations; it represents 75.7% of holdings, or $3.720 trillion. France (6.1%, $299.2B) was number two, and Canada (5.3%, $260.9B) was third. Japan (4.6%, $227.8B) occupied fourth place. The United Kingdom (2.5%, $123.8B) remained in fifth place. Germany (1.3%, $65.0B) was in sixth place, followed by the Netherlands (1.2%, $60.7B), Sweden (0.9%, $43.9B), Australia (0.6%, $30.6B) and Switzerland (0.5%, $24.4B). (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 April 30, 2021, Taxable money funds held 32.7% (down from 34.0%) of their assets in securities maturing Overnight, and another 12.0% maturing in 2-7 days (up from 9.4%). Thus, 44.6% in total matures in 1-7 days. Another 14.0% matures in 8-30 days, while 16.0% matures in 31-60 days. Note that close to three-quarters, or 74.6% of securities, mature in 60 days or less (unchanged from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 11.2% of taxable securities, while 10.8% matures in 91-180 days, and just 3.4% matures beyond 181 days. (Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)

Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Tuesday, and we'll be writing our normal monthly update on the April 30 data for Wednesday's News. But we also published a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Monday. (We continue to merge the two series, and the N-MFP version is now available via Holding file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of April 30, 2021 includes holdings information from 1,042 money funds (down 5 from last month), representing assets of $5.034 trillion (down from $5.046 trillion). Prime MMFs now total $922.2 billion, or 18.3% of the total. We review the new N-MFP data below, and we also look at our revised MMF expense data.

Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Treasury holdings totaled $2.549 trillion (down from $2.587 trillion), or a massive 50.6% of all holdings. Repurchase Agreement (Repo) holdings in money market funds totaled $1.236 trillion (up from $1.195 trillion), or 24.6% of all assets, and Government Agency securities totaled $589.6 billion (down from $616.8 billion), or 11.7%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.374 trillion, or a stunning 86.9% of all holdings.

Commercial paper (CP) totals $278.1 billion (up from $275.1 billion), or 5.5% of all holdings, and the Other category (primarily Time Deposits) totals $162.4 billion (up from $156.7 billion), or 3.2%. Certificates of Deposit (CDs) total $142.8 billion (up from $136.3 billion), 2.8%, and VRDNs account for $76.0 billion (down from $79.1 billion last month), or 1.5% of money fund securities.

Broken out into the SEC's more detailed categories, the CP totals were comprised of: $189.9 billion, or 3.8%, in Financial Company Commercial Paper; $40.8 billion or 0.8%, in Asset Backed Commercial Paper; and, $47.4 billion, or 0.9%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($771.8B, or 15.3%), U.S. Govt Agency Repo ($412.2B, or 8.2%) and Other Repo ($51.8B, or 1.0%).

The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $272.9 billion (up from $269.9 billion), or 29.6%; Treasury holdings of $186.7 billion (down from $200.1 billion), or 20.2%; Repo holdings of $158.3 billion (down from $159.7 billion), or 17.2%; CD holdings of $142.8 billion (up from $136.3 billion), or 15.5%; Other (primarily Time Deposits) holdings of $117.7 billion (up from $107.9 billion), or 12.8%; Government Agency holdings of $35.9 billion (down from $39.2 billion), or 3.9% and VRDN holdings of $7.9 billion (down from $8.2 billion), or 0.9%.

The SEC's more detailed categories show CP in Prime MMFs made up of: $189.9 billion (up from $189.0 billion), or 20.6%, in Financial Company Commercial Paper; $40.8 billion (down from $41.1 billion), or 4.4%, in Asset Backed Commercial Paper; and $42.2 billion (up from $39.8 billion), or 4.6%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($78.1 billion, or 8.5%), U.S. Govt Agency Repo ($28.4 billion, or 3.1%), and Other Repo ($51.8 billion, or 5.6%).

Money fund expense ratios, which fell to their lowest level ever last month, remained unchanged with an average of 0.08%, as measured by our Crane 100 Money Fund Index and Crane Money Fund Average, as of April 30, 2021. The previous record low for monthly annualized charged expense ratios was 0.10% in February (and 0.11% in November 2014 prior to that). Crane Data revises its monthly expense data and gross yield information after the SEC updates its latest Form N-MFP data the morning of the 6th business day of the new month. (They posted this info Monday morning, so we revised our monthly MFI XLS spreadsheet and historical craneindexes.xlsx averages file to reflect the latest expenses, gross yields, portfolio composition and maturity breakout late yesterday.) Visit our "Content" page for the latest files, and see below for the review of the latest N-MFP Portfolio Holdings data.

Our Crane 100 Money Fund Index, a simple average of the 100 largest taxable money funds, shows an average charged expense ratio (Exp%) of 0.08%, unchanged from last month's record low level. The average is down from 0.27% on Dec. 31, 2019, so funds are waiving 19 bps, or 70% of full charged expenses. The Crane Money Fund Average, a simple average of all taxable MMFs, also shows a charged expense ratio of 0.08% as of April 30, 2021, unchanged from the month prior and down from 0.40% at year-end 2019.

Prime Inst MFs expense ratios (annualized) now average 0.14% (up one basis point from last month), Government Inst MFs expenses average 0.05% (down a basis point from the month prior), Treasury Inst MFs expenses also average 0.05% (unchanged from last month). Treasury Retail MFs expenses currently sit at 0.05%, (down a basis point from the month prior), Government Retail MFs expenses yield 0.05% (down a basis point over the month). Prime Retail MF expenses are 0.16% (up a basis point from the month prior). Tax-exempt expenses were up a basis point over the month, averaging 0.13%.

Gross 7-day yields were flat at 0.09% on average in the month ended April 30, 2021. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 747), shows a 7-day gross yield of 0.09%, unchanged from the previous month. The Crane Money Fund Average is down 1.62% from 1.72% at the end of 2019. The Crane 100's 7-day gross yield also remained flat, ending the month at 0.10%, down 1.63% from year-end 2019.

According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is approximately $3.790 billion (as of 4/30/21). Our estimated annualized revenue totals decreased from $3.869 billion last month, and fell from $6.028 trillion at the start of 2020 and from $10.642 trillion at the start of 2019. Charged expenses and gross yields are driven by a number of variables, and increasing Treasury supply should alleviate some of the pressures from this past month. Nonetheless, severe fee waivers and heavy fee pressure should continue as long as the Fed keeps yields pinned to almost zero.

Crane Data's latest Money Fund Market Share rankings show assets were higher among most of the largest U.S. money fund complexes in April. Money market fund assets increased $61.7 billion, or 1.3%, last month to $4.988 trillion. Assets have increased by $240.7 billion, or 5.1%, over the past 3 months, and they've increased by $202.1 billion, or 3.9%, over the past 12 months through April 30, 2021. The biggest increases among the 25 largest managers last month were seen by BlackRock, Goldman Sachs, Federated Hermes, Invesco and Dreyfus, which grew assets by $24.5 billion, $18.3B, $13.0B, $11.0B and $10.4B, respectively. But big declines in April were seen by JP Morgan, SSGA, Fidelity, Northern and HSBC, which decreased by $10.4 billion, $10.1B, $9.8B, $5.3B and $5.1B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals below, and we also look at money fund yields in April.

Over the past year through April 30, 2021, BlackRock (up $66.1B, or 15.2%), First American (up $21.6B, or 23.2%), Vanguard (up $19.1B, or 4.0%), Morgan Stanley (up $17.4B, or 7.7%), Dreyfus (up $8.5B, or 4.2%), Wells Fargo (up $6.1B, or 3.1%) and T. Rowe Price (up $5.7B, or 13.9%) were the largest gainers. These complexes were followed by HSBC (up $5.3B, or 13.3%), Columbia (up $3.8B, or 26.0%) and Alliance Bernstein (up $747M, or 4.8%). BlackRock, Goldman Sachs, JP Morgan, Dreyfus and Federated Hermes had the largest asset increases over the past 3 months, rising by $121.0B, $60.7B, $26.6B, $17.6B and $16.7B, respectively. The largest decliners over 3 months included: Fidelity (down $30.5B, or -3.3%), Schwab (down $12.6B, or -7.5%), Wells Fargo (down $8.7B, or -4.3%), Vanguard (down $6.6B, or -1.3%) and Northern (down $5.7B, or -3.4%).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $883.9 billion, or 17.7% of all assets. Fidelity was down $9.8 billion in April, down $30.5 billion over 3 mos., and down $69.6B over 12 months. BlackRock ranked second with $546.6 billion, or 11.0% market share (up $24.5B, up $121.0B and up $66.1B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard remained in third with $491.5 billion, or 9.9% market share (down $449M, down $6.6B and up $19.1B). JP Morgan ranked fourth with $449.4 billion, or 9.0% of assets (down $10.4B, up $26.6B and down $20.6B for the past 1-month, 3-mos. and 12-mos.), while Goldman Sachs took fifth place with $363.9 billion, or 7.0% of assets (up $18.3B, up $60.7B and down $37.9B).

Federated Hermes was in sixth place with $347.5 billion, or 5.0% of assets (up $13.0 billion, up $16.7B and down $61.0B), while Morgan Stanley was in seventh place with $248.7 billion, or 5.0% (up $4.3B, up $14.1B and up $17.4B). Dreyfus ($225.1B, or 4.5%) was in eighth place (up $10.4B, up $17.6B and up $8.5B), followed by Wells Fargo ($194.1B, or 3.9%, up $854M, down $8.7B and up $6.1B). Northern was in 10th place ($162.0B, or 3.2%; down $5.3B, down $5.7B and down $6.7B).

The 11th through 20th-largest U.S. money fund managers (in order) include: Schwab ($156.3B, or 3.1%), American Funds ($154.2B, or 3.1%), SSGA ($139.9B, or 2.8%), First American ($136.3B, or 2.7%), Invesco ($82.6B, or 1.7%), UBS ($57.8B, or 1.2%), T Rowe Price ($49.7B, or 1.0%), HSBC ($39.4B, or 0.8%), DWS ($33.0B, or 0.7%) and Western ($31.3B, or 0.6%). Crane Data currently tracks 65 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 appear as Fidelity, BlackRock, JP Morgan, Vanguard, Goldman Sachs, Federated Hermes, Morgan Stanley, Dreyfus/BNY Mellon, Wells Fargo and Northern. 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 ($896.2 billion), BlackRock ($738.7B), JP Morgan ($655.2B), Vanguard ($491.5B) and Goldman Sachs ($481.3B). Federated Hermes ($357.2B) was sixth, Morgan Stanley ($301.3B) was in seventh, followed by Dreyfus ($247.1B), Wells Fargo ($195.0B) and Northern ($187.4B) 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 May issue of our Money Fund Intelligence and MFI XLS, with data as of 4/30/21, shows that yields were flat in April for almost all of our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 747), was flat at 0.02% for the 7-Day Yield (annualized, net) Average, the 30-Day Yield was also unchanged at 0.02%. The MFA's Gross 7-Day Yield was unchanged at 0.10%, the Gross 30-Day Yield was also unchanged at 0.10%.

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.02% (unch) and an average 30-Day Yield also unchanged at 0.02%. The Crane 100 shows a Gross 7-Day Yield of 0.10% (unch), and a Gross 30-Day Yield of 0.10% (unch). Our Prime Institutional MF Index (7-day) yielded 0.03% (unch) as of April 30, while the Crane Govt Inst Index was unchanged at 0.02%, the Treasury Inst Index was unchanged at 0.01%. Thus, the spread between Prime funds and Treasury funds is 2 basis points, and the spread between Prime funds and Govt funds is 1 basis point. The Crane Prime Retail Index yielded 0.02% (unch), while the Govt Retail Index was 0.01% (unch), the Treasury Retail Index was also 0.01% (unchanged from the month prior). The Crane Tax Exempt MF Index yielded 0.01% (unch) in April.

Gross 7-Day Yields for these indexes in April were: Prime Inst 0.17% (unch), Govt Inst 0.07% (unch), Treasury Inst 0.07% (unch), Prime Retail 0.16% (down a basis point), Govt Retail 0.07% (unch) and Treasury Retail 0.07% (unch). The Crane Tax Exempt Index was unchanged at 0.13%. The Crane 100 MF Index returned on average 0.00% over 1-month, 0.00% over 3-months, 0.00% YTD, 0.05% over the past 1-year, 1.22% over 3-years (annualized), 1.00% over 5-years, and 0.52% over 10-years.

The total number of funds, including taxable and tax-exempt, was up 15 at 917. There are currently 747 taxable funds, up 11 from the previous month, and 170 tax-exempt money funds (up 4 from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.

The May issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Friday morning, features the articles: "ICI's PWG Comment Defends MMFs; Crane Celebrates 15th," which excerpts from ICI's comment letter to the SEC; "Big Fund Companies Respond to SEC, PWG Report Reforms," which highlights comment letters from the largest money fund complexes; and, "ICI 2021 Fact Book Shows Money Fund Trends in '20," which reviews ICI's annual statistical work. We also sent out our MFI XLS spreadsheet Friday a.m., and updated our Money Fund Wisdom database query system with 4/30/21 data. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our May Money Fund Portfolio Holdings are scheduled to ship on Tuesday, May 11, and our May Bond Fund Intelligence is scheduled to go out Friday, May 14.

MFI's lead article says, "The big news last month was the submission of comment letters to the SEC ahead of potential changes to money fund regulations. We quote from mutual fund trade association, the Investment Company Institute, who writes, 'Money market funds did not cause the stresses in the short-term funding markets last March. US public institutional and retail prime money market funds accounted for just 19% of the reduction in financial and nonfinancial commercial paper outstanding during the week-ended March 18.... Other market participants accounted for 81% of the decline.... In addition, even at the height of the liquidity crisis, money market funds, including institutional prime money market funds, still had liquidity to meet new redemptions if they had meaningful opportunity to use part of their 30% weekly liquid asset buffers.'"

The ICI continues, "To the extent policymakers seek to mitigate the possibility of future distress in the short-term funding markets, they should prioritize the examination of the activities and behavior of all market participants. Only by doing so will policymakers make progress toward their goal of making the financial system more resilient in the face of a liquidity shock of the nature experienced in March 2020."

Our second article reads, "Following the April 12 deadline, we've been detailing comment letters to the SEC in response to its 'Request for Comment on Potential Money Market Fund Reform Measures in President's Working Group Report.' Below we highlight excerpts of the letters submitted by the largest money fund complexes. (Note: For more, please join us for our webinar, 'Handicapping Money Fund Reforms,' Thursday, May 20 from 2-3pmET.)"

The piece continues, "Fidelity Investments explains, 'While we view the PWG Report as a productive first step in considering potential reform measures, we encourage the SEC to now narrow the range of options under consideration by eliminating those options that have no nexus to the events of 2020 and therefore would not achieve any of the goals for reform stated in the PWG Report. The details of any measures that the SEC wishes to pursue further remain to be considered and, as such, we anticipate having more viewpoints to offer once more of these details are made public."

The "ICI Fact Book" article tells readers, "ICI's new '2021 Investment Company Fact Book' looks at the crazy events of 2020 and the huge inflows into Government money market funds. Overall, money funds assets were $4.333 trillion at year-end 2020, making up 18.1% of the $23.9 trillion in overall mutual fund assets. Retail investors held $1.529 trillion, while institutional investors held $2.804 trillion."

ICI tells us, "In 2020, money market funds received $691 billion in net new cash flows, up from $553 billion in 2019.... Government money market funds received substantial inflows ($835 billion) while prime money market funds and tax-exempt money market funds had outflows of $111 billion and $33 billion, respectively."

MFI also includes the News piece, "MMF Assets Stay Strong in April." It says, "Crane's MFI shows assets rising $62.2 in April to $4.991 trillion, but ICI's weekly "Money Market Fund Assets" report shows MMFs falling $​17.2 billion to $4.512 trillion in the latest week."

An additional News brief, "Powell Hits MMFs on 60 Minutes," tells us, "Federal Reserve Chair Jerome Powell discussed money funds during a recent '60 Minutes.' He comments, "Most parts of the financial system made it through quite a stress test last year, [but] some parts of the financial system had to be bailed out again, places like money market funds ... where we had to step in again and provide liquidity.... There's a structural issue and we know this, and it really is time to address it decisively."

Our May MFI XLS, with April 30 data, shows total assets increased $62.2 billion in April to $4.991 trillion, after jumping $151.0 billion in March, rising $30.8 billion in February and $5.6 billion in January. Assets decreased $6.7 billion in December, $11.7 billion in November, $46.8 billion in October, $121.2 billion in September, $42.3 billion in August, $44.2 billion in July and $113.0 billion in June. Our broad Crane Money Fund Average 7-Day Yield was unchanged at 0.02%, our Crane 100 Money Fund Index (the 100 largest taxable funds) also remained flat at 0.02%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both stand at 0.10%. Charged Expenses averaged 0.08% for the Crane MFA and 0.08% for the Crane 100. (We'll revise expenses on Monday once we upload the SEC's Form N-MFP data for 4/30.) The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 40 (down two days from the previous month) and 42 days (down two days) respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

A press release entitled, "Morgan Stanley Investment Management and CastleOak Securities, L.P. Debut New Share Class," tells us, "Morgan Stanley Investment Management ('MSIM') and CastleOak Securities, L.P. ('CastleOak'), an industry-leading, minority-owned, boutique investment bank are pleased to announce an expansion of their long-standing partnership by debuting two new co-branded share class offerings that provide clients an expanded menu of short-term cash investment services. As clients increasingly look to maximize their social impact, these two new products provide a solution that brings together CastleOak's strong institutional relationships and Morgan Stanley's unparalleled investment experience." (For more on the MS CastleOak Shares, see our recent Crane Data News: Morgan Stanley's Wachs, Crane Talk ESG, Social Money Funds on Webinar (5/4/21), and Morgan Stanley Files for CastleOak Shares; Bond Fund Symposium Today (3/25/21).)

It continues, "CastleOak shares of the Morgan Stanley Institutional Liquidity Funds Government (ticker COSXX) and ESG Money Market Fund Portfolios (ticker OAKXX) are now available, enabling clients to help meet their primary cash investment goals of principle preservation and liquidity, while supporting their Diversity & Inclusion (D&I) efforts in a transparent and meaningful way."

David R. Jones, President & CEO of CastleOak Securities, L.P., comments, "Morgan Stanley Investment Management has been an outstanding partner.... The Morgan Stanley team recognized the expertise, experience, and relationships of an independent investment bank like ours. Launching these new share classes gives our clients yet another way to meet their ESG goals without compromising the standards they expect when choosing where to put their money to work." The release also says, "The addition of new share classes underscores CastleOak's ongoing efforts to expand its Money Fund Access web-based liquidity solutions platform."

Morgan Stanley's Fred McMullen adds, "This partnership is a unique opportunity for Morgan Stanley Investment Management to team up with a best-in-class firm like CastleOak to deliver treasury management solutions that can help companies advance their D&I objectives.... We are proud to be working together on this exciting product offering."

In related news, State Street Global Advisors' Will Goldthwait spoke yesterday at the 2021 New England AFP Annual Conference," and briefly discussed ESG and D&I in money market funds during a presentation. When asked, "Is ESG here to stay?" Goldthwait responds, "Yeah, without a doubt it is. There's no question in my mind. I think the way it's in cash right now will change.... I'm not alone in saying this [but] ESG ultimately is going to be something that just is part of your overall investment process."

He tells us, "I think cash is a great example of how this is happening. We use a proprietary R-factor score, what we call the responsibility factor, and we have that score on all of the credits on our credit approved list. Now, the R-factor doesn't cover 100 percent of the credits, but for all of our credits on that credit approved list that have an R-factor score, that goes into our decision-making process, even if it's a non-ESG fund. We can see that score, we're looking at it, and we're trying to reward those companies that have higher R-factor scores. So, in a way, even though we only have one ESG fund in the U.S. right now that's up and running, we are looking at that R-factor across our entire investment process.... So, I think that's the evolution of ESG in cash."

Goldthwait continues, "We've been managing ESG portfolios since 1985 in the equity space, and the fixed income space since 1995. And typically, what that is, is exclusionary methods. You take a certain sector with certain companies and you exclude them from the portfolio and you set up an index that has those credits or those sectors excluded, and then that's what you benchmark against.... Now what we're seeing is a tilt. So rather than an exclusionary basis, there's a tilt towards those that have higher ESG scores, or in our case higher R-factor scores. There's no reason that we can't apply that across our entire cash strategy."

He says to the NEAFP, "The other thing I'll mention regarding D&I and minority broker-dealers is, we're looking very hard at this. We had already been trading with minority broker-dealers.... So we're just increasing those efforts, and we're just trying to spread that across all of our Government and Treasury [MMF] strategies. [We're] looking hard at those trade volumes, looking hard at those metrics and applying that really across all of our strategies."

Finally, Goldthwait adds, "Now, we have to be thoughtful about that. Right? I mean, as everyone knows, Government funds are huge, they're billions and billions and billions of dollars. So you can't take a smaller broker-dealer and overwhelm them with huge tickets. You have to be very thoughtful and considerate and sort of help them grow, and that's what we're committed to doing. We want to see that part of the broker-dealer community grow and we want to try to help them do that." (Note: The New England AFP online conference continues today, and ICI's 2021 Virtual General Membership Meeting also starts today.)

For more on ESG and "Social" MMFs, see also: Northern Renames Diversity Shares Siebert Williams; Safened Platform (4/20/21); JP Morgan Launches "Empower" Share Class to Support Minority Banks (2/24/21); Invesco Files for Cavu Secs Class (12/18/20); ESG and Social MMF Update: Mischler News, Green Deposits, Reg Debate (12/4/20); Goldman Launches Social Class; Tiedemann Adds FICA; CS Green ABCP (1/24/20); Mischler Financial Joins "Impact" or Social Money Market Investing Wave (12/6/19); and Dreyfus Launches "Impact" or Diversity Government Money Market Fund (11/21/19).

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 April 30, 2021) includes Holdings information from 49 money funds (down 23 funds from a week ago), which represent $1.624 trillion (down from $1.999 trillion) of the $4.888 trillion (33.2%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.)

Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $833.0 billion (down from $1.018 trillion a week ago), or 51.3%, Repurchase Agreements (Repo) totaling $720.4 billion (down from $489.0 billion a week ago), or 25.9% and Government Agency securities totaling $198.0 billion (down from $235.8 billion), or 12.2%. Commercial Paper (CP) totaled $66.4 billion (down from $88.4 billion), or 4.1%. Certificates of Deposit (CDs) totaled $45.7 billion (down from $62.9 billion), or 2.8%. The Other category accounted for $42.8 billion or 2.6%, while VRDNs accounted for $18.0 billion, or 1.1%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $833.0 trillion (51.3% of total holdings), Federal Home Loan Bank with $112.7B (6.9%), BNP Paribas with $44.1B (2.7%), RBC with $38.7B (2.4%), Federal Farm Credit Bank with $36.3B (2.2%), Federal Reserve Bank of New York with $36.1B (2.2%), Fixed Income Clearing Corp with $35.7B (2.2%), Federal National Mortgage Association with $33.1B (2.0%), JP Morgan with $26.9B (1.7%) and Credit Agricole with $24.9B (1.5%).

The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($216.4 billion), Wells Fargo Govt MM ($145.1B), Fidelity Inv MM: Govt Port ($132.3B), Morgan Stanley Inst Liq Govt ($121.4B), JP Morgan 100% US Treas MMkt ($104.4B), Dreyfus Govt Cash Mgmt ($104.0B), First American Govt Oblg ($98.1B), State Street Inst US Govt ($83.7B), JPMorgan Prime MM ($76.5B) and Morgan Stanley Inst Liq Treas Sec ($62.0B). (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, S&P Global Ratings published "U.S. Domestic 'AAAm' Money Market Fund Trends (First-Quarter 2021)," which tells us, "Rated U.S. MMFs finished the first quarter of 2021 with sizable positive flows. Government funds remained the driving force behind this trend, highlighting their growing favor among investors. For the first quarter, government MMF assets increased nearly 9%, reaching levels akin to the peak of 2020, and prime fund assets remained consistent with the previous quarter end. Overall, for the first quarter, U.S. domestic PSFR assets increased to $3.2 trillion, from $2.98 trillion."

The update tells us, "Large purchases of Treasury bills were ongoing in government funds--along with an uptick in Treasury notes--as managers moved from agency securities. Agency and floater exposures hit a low by quarter-end, reflective of low rates. Several managers were awaiting the introduction in this quarter of the Bloomberg Short-Term Bank Yield Index (BSBY), an alternative money market reference rate to SOFR (Secured Overnight Financing Rate), which may reignite interest in floating rate instruments."

S&P adds, "Prime funds have slowly begun to reposition themselves to slightly mirror pre-pandemic times. For instance, while Treasury bills remained a valuable tool for overnight liquidity, there was less emphasis on usage. Average T-bill exposures decreased to 3%, the lowest concentration since before the COVID-19 pandemic. Managers also increased their bank deposit and asset-backed commercial paper exposures. The Federal Reserve's Money Market Mutual Fund Liquidity Facility officially ended, but the pressing issue for prime funds is the likelihood of regulatory reform as the SEC seeks public comments on potential reform measures for MMFs during the quarter."

S&P also published "European 'AAAm' Money Market Fund Trends (First-Quarter 2021)," which comments, "European-domiciled MMFs we rate had mixed results during the first quarter of 2021 as euro and sterling-denominated MMFs had negative flows of 20% and 8%, respectively, while U.S. dollar funds saw a 1% increase from Dec. 31, 2020. Comparatively, since the first quarter of 2020, the three currencies showed asset growth of 16% (euro), 7% (sterling), and 18% (U.S. dollar), continuing to emphasize the demand for MMFs, despite low and negative yielding investments."

They write, "During the past 12 months, money market funds have been in the spotlight again and tested by the wider market impact of COVID-19, yet the MMFs we rate all had their 'AAAm' ratings affirmed in 2020. Going forward, we'll continue our weekly surveillance and regular interactions with MMF fund managers, and we expect that ratings will hold up."

Also, Fitch Ratings also published several fund ratings actions. The first, "Fitch Assigns 'AAAmmf' Rating to the North Carolina Investment Pool-Liquid Portfolio," explains, "Fitch Ratings has assigned a 'AAAmmf' money market fund (MMF) rating to the North Carolina Investment Pool-Liquid Portfolio (NCIP). The commingled local government investment pool was established pursuant to North Carolina's state code as a statutory trust for the benefit of the North Carolina local governments, and is governed by a board of trustees that are representatives of participant units of local government. PFM Asset Management LLC (PFMAM) serves as the pool's investment adviser and administrator. NCIP was established to invest idle funds of its participants in various high-quality money market investments, in accordance with North Carolina General Statutes. NCIP seeks to maintain a stable NAV of $1.00."

Another release, "Fitch Rates COLOTRUST EDGE 'AAAf'/'S1'," states, "Fitch Ratings has assigned a 'AAAf' International Fund Credit Quality Rating (FCQR) and a 'S1' Fund Market Risk Sensitivity Rating (MRSR) to COLOTRUST EDGE. The pool was established as an authorized investment for local government participants, pursuant to Colorado state regulatory requirements. The COLOTRUST program is supervised by a board of trustees comprised of eligible local government participants of the program. Public Trust Advisors, LLC (PTA) serves as the investment advisor and administrator for the pool."

A third LGIP release, "Fitch Rates FLCLASS Enhanced Cash 'AAAf'/'S1'," adds, "Fitch Ratings has assigned a 'AAAf' International Fund Credit Quality Rating (FCQR) and a 'S1' Fund Market Risk Sensitivity Rating (MRSR) to FLCLASS Enhanced Cash. The pool was established as an authorized investment for local government participants, pursuant to Florida state regulatory requirements. The FLCLASS program is supervised by a board of trustees comprised of eligible local government participants of the program. Public Trust Advisors, LLC (PTA) serves as the investment advisor and administrator for the pool."

Finally, a fourth release, "Fitch Rates Goldman Sachs Financial Square Federal Instruments Fund 'AAAmmf'," says, "Fitch Ratings has assigned a 'AAAmmf' rating to the Goldman Sachs Financial Square Federal Instruments Fund. The fund is a Rule 2a-7 registered government money market fund managed by Goldman Sachs Asset Management, L.P."

Late last month, Crane Data hosted an ESG & Social Money Fund Update webinar, which featured a discussion between our Peter Crane and Morgan Stanley's Global Head of Liquidity Product Scott Wachs. The two talked about ESG Prime MMFs, Social Govt MMFs, and Diversity private-labelled share classes. We also discuss asset flows, fee waivers and future MMF reforms. Below, we quote from our discussion. (Note: Crane Data Subscribers and Attendees may access the Powerpoint and recording for the "ESG & Social Money Fund Update" here, and mark your calendars for our next webinar, "Handicapping Money Fund Reforms," which will take place May 20 (Thursday) from 2-3pm EDT.)

After introducing the ESG webinar, Crane comments on asset growth, saying, "What's underappreciated ... is the steady build up prior to that [March 2020] super spike. Asset-wise, it's the best of times for money funds. You had back-to-back 20% gain years in '19 and '20. In '21, when it looked like a lot of that cash was eroding, now March [2021] saw strong inflows too. So that's the good news ... assets are very strong, very robust. The Government MMF assets are almost record level."

Wachs tells us, "Yes, [investors in 2020] didn't know ... when and how they would be able to obtain and spend their money, or what options they may have for investment. Obviously, many companies held off investing [over] concerns about the path of the coronavirus and the path of the economy. There are certainly a number of firms as well that took advantage of government programs to build up their cash for things like payroll, and to continue to maintain their resources so they could more easily open back up when the environment became better. We certainly saw money come into our Government funds. While in March of last year there was a fairly rapid decline in Prime funds for several weeks, the bounce back was pretty quick as well."

He continues, "You look at the beginning of this year, and we've continued to see growth in money market funds, both in Government funds, but also in Prime funds as well for us at Morgan Stanley. When I think about why we've seen that uptick in Government funds, particularly in the last month or so, I think about it from a corporate treasurers' standpoint and what their options are to invest their cash. If you look at Treasuries, what's happening in the market is that Treasury rates have been so incredibly low, to buy an overnight treasury you're talking about yields of two or three basis points."

Wachs adds on rates, "I think everyone has a yield floor in place for their Government money market funds, they range from one to two, three, sometimes four basis points.... But if you think about executing a trade in a money market fund versus executing a trade in a Treasury, all of those fundamental characteristics that cause investors to historically really like money market funds continue to be very, very attractive. In a Government money market fund, you have the constant net asset value, you have same-day liquidity, so ease of access to your cash, and the execution is very easy. Treasuries are not quite as strong on all of those points, and particularly the execution process.... When yields for a Treasury are in the same neighborhood as the Government money market funds, I think a lot of corporate treasurers will choose to buy the Government money market fund."

Crane comments, "Looking at the yields, [the environment] has been as close as you really can get to zero without going negative.... Compressed spreads, Prime yielding barely anything above Governments and fee waivers. The expenses charged on money funds are hitting record lows. In 2009 through 2015 money fund expenses, roughly were cut from 0.3% on average to 0.15%, now, they've been cut this time from 0.3% to 0.1%, even below 10 basis points. Scott, talk about the yields, how brutal? How low? And, fee waivers?"

Wachs responds, "The low yield environment is biting all of us.... I think some of the stats that you just rattled off are pretty much on target in terms of the impact. We're very hopeful, especially given some upticks in the economy right now, that the zero-rate environment this time is not going to last anywhere near as long as it did last time. But there's no doubt in the immediate time frame, the low-rate environment is hurting from a manager standpoint, from an investor standpoint, and from an intermediary standpoint."

He also says, "I think when you think about ESG and sustainability, Morgan Stanley as a firm has had a long history of focus on sustainability. We've been thinking about sustainability as a firm probably for over ten years at this point. So, it's core to the values of Morgan Stanley. We've have expertise and experience in ESG and sustainable investing in businesses across the firm, so we have a lot of organizational history and knowledge in the space. As we thought about our money market fund platform and as we've spoken to clients, we realized this was not only important to Morgan Stanley as the firm, but also to our clients as well. So, we thought about the best way to serve our clients in that regard. We thought about our money market fund lineup and the best way to serve our clients on this topic was to develop an ESG money market fund."

Wachs explains, "We didn't want it to be sort of a plain vanilla ESG money market fund. We wanted it to be one that was very robust and very consistent with a strong recognition of ESG and ESG process.... That's so important to clients, and that's so important to Morgan Stanley as a firm. We decided to convert one of our existing small Prime funds to the ESG Money Market Portfolio, and we did this in October of 2019. It's been quite successful to date and that fund is again, I think, one of the most robust ESG funds in the market."

He tells us, "I want to also just spend a moment talking about how we think about socially conscious funds. And here's how we make that definitional distinction between ESG funds and socially conscious funds, because they really kind of overlap a little bit. `When I think about a ESG fund, I think about a fund that has ESG specific considerations in its investment process, following certain investment guidelines, processes and objectives that are ESG related. A socially conscious fund, in the way we think about it, implements certain considerations from an operational or executional perspective. We have our Government Securities Fund, which is a socially conscious fund in that we trade with D&I [diversity and inclusion] broker dealers. So, for the purchase trades that we do in the Government Securities Fund, we seek to do those trades with D&I broker dealers. So that's not part of the investment decision process in terms of the types of securities you're going to buy, but it's part of the execution of the trading process. Both are important in driving adoption and change in the industry more broadly."

Wachs adds, "The third leg of this ESG and socially conscious dimension is private labeled share classes. This is where there is a share class that is launched and offered by a fund manager in conjunction with the D&I broker dealer.... You'll see a number that have been offered to date and there are a few that are pending as well. We actually filed in March for a private labeled share class, the CastleOak Shares.... It's still in registration, so I can't really say much more than that."

Crane states, "Let's talk on each of these a little bit more. The ESG and the Prime, to me, was really the first wave, but it got hampered by the issues for Prime overall.... Of course, Prime is under the gun now, it's under scrutiny because of the gates and fees, the floating NAV. It's a real shame because prior to coronavirus, it was making a very nice recovery. Prime was coming back, yields were rising, we almost had 2% yields in money funds.... And then all of a sudden it stopped.... If Prime funds are all [invested in] banks, can you really differentiate? And then, of course.... I took a [look at all the] Prime ESG funds ... and then it hit me, they don't have Treasuries."

Wachs replies, "I think sometimes when you think about ESG in the money market fund space, it's a little bit challenging to think about what does that really mean in terms of scoring issuers and looking at issuers? It's not quite as clear as maybe in the equity space ... where you have a much greater variety of industries that you tend to be investing in. But, even in the limited set of issuers that we all look at in the money market fund space, we're looking at the highest quality credits, that's all that money market funds tend to invest in anyway. But even in that context, you look at the ESG factors: environmental, social and governance. There are factors that are ones that you can differentiate on. Things like how diverse is the board of the bank? How do they think about lending to minority communities? How have they responded to the broader social issues that exist today?"

Crane then says, "Let's talk about the Social now. You mentioned doing business through diverse and inclusive and minority dealers is the primary way. These are all Government money funds. The Federal Home Loan Bank has their list of D&I dealers, and I think this really was a crucial step in letting a lot of the government funds have something to hang their hat on. Saying here's the list, Federal Home Loan Bank puts it out, so ask them if you want to do business through us. We're using their list. I know you guys converted a government fund. That's the other thing is that a lot of these government funds were already at least a few billion dollars ... having that heft can't hurt, right?"

Wachs answers, "Absolutely. We were in, I think, a pretty good position to think about this because of the breadth of our Government and Treasury fund complex. This is something that we have thought about for years. Having a very deep Government fund complex, having a Government Securities fund, a Government and Repo fund, a Treasury Securities fund [and] a Treasury and Repo fund ... all ... extremely successful. They all have had very strong scale, which is attractive. That gave us the opportunity to think across the spectrum of Government and Treasury funds as to how to best put in place a D&I trading overlay. The other thing that I think put us in a very good place is that again, because our firm has had a focus on sustainability and D&I for a number of years, a good many of the dealers listed on that Federal Home Loan list are dealers that our firm and our team have relationships with. So, it [wasn't] new to us, when we put this overlay in place on our Government Securities Fund at the beginning of this year.... We really just institutionalized and emphasized to a greater degree the work that we're doing with these D&I broker dealers."

Federated Hermes hosted its quarterly earnings call (see the Seeking Alpha transcript here) on Friday, and fee waivers and virtually zero rates were the big topic of discussion. Federated's release explains, "Money market assets were $419.1 billion at March 31, 2021, down $32.2 billion or 7% from $451.3 billion at March 31, 2020 and down $1.2 billion or less than 1% from $420.3 billion at Dec. 31, 2020. Money market fund assets were $297.2 billion at March 31, 2021, down $38.9 billion or 12% from $336.1 billion at March 31, 2020 and down $4.7 billion or 2% from $301.9 billion at Dec. 31, 2020."

It explains, "Revenue decreased $18.0 million or 5% percent primarily due to an increase 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). For further information, see "Impact of voluntary yield-related fee waivers" below. This decrease was partially offset by an increase in revenue due to higher average equity and fixed-income assets and an increase in revenue from alternative/private markets assets primarily related to revenue of a previously nonconsolidated entity being recorded in operating revenue beginning March 2020. During Q1 2021, Federated Hermes derived 75% of its revenue from long-term assets (49% from equity, 16% from fixed-income and 10% from alternative/private markets and multi-asset), 24% from money market assets, and 1% from sources other than managed assets."

President & CEO J. Christopher Donahue says on the call, "Moving to money markets, assets were down about $1 billion in Q1 from year-end. Our money market fund market share including sub advised funds at quarter-end, was about 7.4%, down slightly from the year-end market share of 7.8%. While we've seen longer-term interest rates increased recently, short-term interest rates remain at historic lows, with yields on money market securities dropping to the low single-digits over the last couple of months. As a result, minimum yield waivers were greater than anticipated in the first quarter, and certain money market separate accounts have begun to be impacted in a similar way. Minimum yield waivers are expected to increase again in the second quarter before declining over the rest of the year, as we noted in our press release. As usual, we experienced waivers for competitive purposes as well."

He continues, "Against the challenging interest rate and yield environment, money market funds continue to show their resilience and value to investors, issuers, and the overall financial system. The most recent ICI statistics show $4.5 trillion in money fund assets, up from $4.3 trillion since year-end and $3.6 trillion at the end of 2019. We believe that the lower interest rate challenge will pass despite the Fed's current stance. It's hard not to conclude that the pandemic recovery and the massive stimulus being unleashed will not lead to interest rate increases."

Donahue tells us, "We also believe that as we enter another round of the 40-plus years of money market fund regulatory discussions, the truth is that the March 2020 market disruptions in the midst of the global pandemic were in no way caused by money market funds. The essential role money market funds play in our capital markets will be recognized by regulators. We expect the regulatory process to follow the data. Any regulatory changes should be based on facts, not false narratives, and should preserve issuers and investors ability to utilize money market funds."

CFO Thomas Donahue says, "Total revenue for the quarter was down from the prior quarter due to the increased negative impact of minimum yield waivers of $27 million, fewer days costing $9.3 million, lower money market assets costing $6.4 million, and lower performance fees.... As noted in the press release, negative impact from operating income from minimum yield waivers on money market mutual funds and certain separate accounts may range from $35 million to $45 million during the second quarter. This range is based on gross yields on government money market portfolios of 3 to 10 basis points. The historically low yields are being driven by technical factors at the front-end of the yield curve. In March, we began taking on more of the impact of the low rates through waivers as we were not able to further reduce distribution expenses on certain funds and separate accounts. This was largely responsible for the higher than forecasted Q1 waivers and the higher forecast range for Q2."

He adds, "We believe that minimum yield waivers are likely to peak in Q2 and we expect short-term rates to increase in Q3 and Q4. The amount of minimum yield waivers and the impact on operating income will vary based on a number of factors, including among others interest rates, the capacity of distributors to absorb waivers, asset levels, and flows. Any changes in these factors can impact the amount of minimum yield waivers, including in a material way."

During the Q&A, Money Market CIO Deborah Cunningham explains, "Some of the more specific factors about our outlook have to do with currently where overnight rates are trading, which is in the one basis point, maybe one to two basis range.... [T]hroughout most of 2020 ... overnight rates have been somewhere in the neighborhood of five to eight basis points. Our expectation would be because of various processes that the Fed has already gone through by increasing their RRP counterparty limits.... We do believe that we will see some technical adjustments to that reverse repo rate ... up to a level [of] five basis points. Commensurate with that would be likely an IOER of 5 basis points. What this does not only raises the floor from an overnight perspective by that amount of basis points, but it also raises the money market yield curve by upwards of probably three to five basis points depending upon what part of the curve you're looking at. So that plays directly through as we invest in those markets on a daily basis to the yields of the fund and thus the waivers."

She also says, "So ... the technical adjustments that we hope are coming in the second quarter from the Fed with regard to the RRP and IOER rates should be extremely helpful. Then ... debt ceiling issues start to impact in the beginning of the third quarter. Once that [is] past us, we believe that the money market yield curves which on the Prime side, like the BSBY curve, which I'll note I'm using that instead of LIBOR now, the Bloomberg Short Term Bank Yield Index, a new gauge that we think is helpful on the Prime side. That curve is already backed up maybe one to three basis points since the beginning of the year really starting in the fourth quarter of last year. But the [T-bill] curve, where the majority of our assets lie from a Government fund standpoint, has actually declined and gotten less steep by anywhere from one to three basis points."

Cunningham comments, "So we think we start in the third quarter to have the bill curve start to normalize a little bit more. Also at that point, it's our expectation that because of the economic recovery, we should be seeing an improvement in where we see our current standard inflation measures. And the Fed will need to begin to address those -- that issue, the target rate. And we think that they start that process by beginning to announce cutbacks in their bond buying late in the second half of 2021, which then sets the stage for further economic recovery, further inflationary issues in 2022 at which point we think the Fed will react by increasing by 25 basis points. So the point ... is that even without the Fed adjusting the target Fed funds rate, we think that there is a huge benefit with some of the technical adjustments that they can and will likely do that will improve the products from a gross yield stand point, which obviously helps waivers. But ... true target adjustments don't come until sometime in 2022 later in the year, more than likely."

In response to another question, she responds, "The large majority of our $430 billion in assets under management in the liquidity space is in the Government product area, roughly two thirds of it. As such, those portfolios generally have about 40% to 60% of their composition of their assets in overnight securities. So, 50% of five basis points gives you two and a half basis points on two thirds of the assets. The other asset classes, the Prime products, and the Tax Free products and then the remaining portion of the Government products would be more impacted by what the curve does as opposed to what overnights do, and we think that impact is more along the lines of maybe a basis point or two."

When asked, if "the money market fund business was a profitable business," Tom Donahue replies, "It is not generating losses, it is still a profitable good thing to be doing." On consolidation, Chris Donahue comments, "Yes, there will be more of those come along.... Each step in this process from prior to the big recession of 2008-2009 as I mentioned before, there were over 200 people doing money market funds. Now, if you look at the list it's 50 or so. And a lot of those are just in it, because they totally control the money in and out. And as time evolves and as these things occur, people decide they're going to throw in the towel. And then we work out a deal not unlike we worked our with PNC that works out for everybody. And as I always like to say we are a warm and loving home for any money market fund assets."

Finally, when asked about sharing fee waivers, Chris Donahue adds, "Generally as rates go down in this period, and in the last period, we have shared pro rata with our distribution partners. [But] as rates ... get down to where there's no more sharing -- i.e. the distribution partner is receiving zero -- there's no more sharing that they can do and we take the brunt of the hit.... And that's what you saw -- late in the first quarter.... The distribution savings couldn't go ... any lower and it hit all to us."