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Ripple Effects: Will Institutional MMFs Start Waiving Fees to Stay Above Water?

By August 27, 2020No Comments

Rock-bottom rates have pushed retail money funds to waive fees, and institutional funds may be next.

The Wall Street Journal this week gave prominent play to a story headlined “Money Funds Waive Charges to Keep Yields From Falling Below Zero.” That piqued our interest.

  • Money market funds (MMFs) are a staple of many treasury investment managers and an important product for many of the banks that help corporates manage short-term cash.
  • MMF yields have plummeted. Seven-day net yields for the average money fund slid to 0.05% in July from 1.31% at the end of 2019, according to research firm Crane Data, the Journal reported.

Retail, not institutional. What theJournal story doesn’tsay is that the fee waiving is centered on funds aimed at retail investors, not institutions. Here’s what Pete Crane, President of Crane Data, explained at a recent webinar:

  • “Fee waivers are a big deal on the retail side, where money funds are basically having to cut their expenses by a percentage, or even in half in some cases, to keep yields staying above zero.
  • “Right now, two thirds of the funds out there are yielding 0% to 0.​01%, and one third of the assets. This is a simple average of asset weight; the big dollars are, of course, in lower expense funds. 
  • “The institutional assets have lower expenses so, they’​re not in that waiver boat nearly as much or if at all, as the retail funds.”

Portal pressure? We followed up with Mr. Crane to ask whether MMF platforms or portals used by some NeuGroup members have started to feel the effects of lower fees being borne by banks and brokerages.

  • “Portals should begin to feel some fee pressure as funds try and cut costs across the board to live with the new lower revenue environment,” he wrote. “A lot depends on how rates move going forward.”
  • Tory Hazard, CEO of the MMF portal ICD, said in an email, “The vast majority of institutional MMFs have yet to experience fee waivers this time around. However, it is expected fee waivers will become necessary in September to avoid negative net asset values. 
  • “When this occurs, fund companies and institutional distributors will share the cost to shield corporate investors from negative yields.
  • “At ICD, we are actively working with our fund partners to ensure minimal impact to our clients.”
Justin Jones

Author Justin Jones

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