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Goldman Sachs Group Inc., JPMorgan Chase & Co. and Fidelity Investments are the biggest winners from investors pouring cash into U.S. money market funds over the past two weeks as the collapse of two regional U.S. banks and the rescue deal for Credit Suisse Group AG raised concerns about the safety of bank deposits.
More than US$286-billion has flooded into money market funds so far in March, making it the biggest month of inflows since the depths of the COVID-19 crisis, according to data provider EPFR Inc.
Goldman Sachs’ U.S. money market funds have taken in almost US$52-billion, a 13 per cent increase, since March 9, the day before U.S. authorities took over Silicon Valley Bank (SVB). JPMorgan’s funds received almost US$46-billion and Fidelity recorded inflows of almost US$37-billion, according to iMoneyNet Inc. data as of Friday morning.
Money market funds typically hold very low-risk assets that are easy to buy and sell, including short-dated U.S. government debt. The yields available on these vehicles are now the best in years as they rise with interest rates, which the U.S. Federal Reserve Board has lifted to 15-year highs in its quest to curb inflation.
There were smaller net inflows in January and February, setting the stage for the strongest quarter for U.S. money funds since the outbreak of the coronavirus pandemic three years ago.
The pace of inflows has accelerated in the past fortnight, particularly from large depositors looking for safe havens. While U.S. officials agreed to backstop all of the deposits at SVB and Signature Bank, which failed the same weekend, they have not guaranteed deposits above US$250,000 at other institutions.
“We are seeing shifts into money market funds by every segment of investor,” says Ashish Shah, chief investment officer for public investing at Goldman Sachs Asset Management LP (GSAM).
“Given the volatility we’re seeing in the market, every investor has to ask themselves: Does my cash risk profile match [my overall risk profile], and am I sufficiently diversified among the choices?”
The surge in flows this month helped push overall assets in money market funds to a record US$5.1-trillion on Wednesday, according to research from Bank of America Corp.
Data from the Investment Company Institute (ICI) show the money is flowing specifically into funds that hold U.S. government debt, which is considered the safest destination. So-called prime funds, which hold bank debt and corporate paper, have had small outflows. The biggest inflows have gone to funds associated with blue-chip Wall Street banks and the largest investment houses.
Fed data released on Friday showed bank deposits declined in the week through March 15, from US$17.6-trillion to US$17.5-trillion, and deposits at small banks declined from US$5.6-trillion to US$5.4-trillion.
Neel Kashkari, president of the Minneapolis Fed, on Sunday said the stresses in the banking sector brought the U.S. closer to a recession.
“It definitely brings us closer,” Mr. Kashkari said on CBS’s Face the Nation. “What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch.”
Sara Devereux, global head of The Vanguard Group Inc.’s fixed-income group, says: “Money market funds have seen remarkable flows in recent weeks, with the largest flows into government money market funds. Part of that is because of a flight to quality after the scare with bank closures, but it’s also because yields for money markets are currently very attractive.”
Her group had almost US$12-billion of inflows, placing it sixth behind the top three and Charles Schwab Corp. and Federated Hermes.
The ICI data show the bulk of the flows is coming from institutional investors but retail clients are also moving into money market funds.
Andrzej Skiba, head of BlueBay U.S. fixed income at RBC Global Asset Management, says: “When you have tremors in the markets with a high degree of uncertainty about major parts of the economy and across the world, not just in the U.S., the first impulse is to go toward safety.”
Mr. Skiba adds: “Given the yields on offer, money market funds offer not just a good yield, but also a lot of safety for investors.”
He says much of the inflows are being invested in record issuance from the Federal Home Loan Bank – it’s responding to massive demand for liquidity from its member banks who are trying to reassure depositors about their stability.
“We generally see strong demand for money markets, in part due to robust yields on offer, while in part reflecting substantial amount of liquidity the funds provide to both institutional and retail investors alike, even in [or especially amid] volatile markets,” Mr. Skiba says.
International money market funds, which are smaller to begin with, are seeing a less pronounced trend. But BlackRock Inc.’s international funds have received US$16-billion in international inflows since March 9, and GSAM received US$6-billion, according to iMoneyNet.
Additional reporting by Felicia Schwartz in Washington.
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