Goldman Sachs, JPMorgan Chase and Fidelity are the biggest gainers among investors who have poured money into US money market funds over the past two weeks, as the collapse of two regional US banks and a Credit Suisse bailout raised concerns about the safety of bank deposits.
More than $286 billion has flowed into money market funds so far in March, making it the largest month of inflows since the depths of the COVID-19 crisis, according to data provider EPFR.
Goldman’s US financial funds have accounted for nearly $52 billion, an increase of 13 percent, since March 9, the day before the Silicon Valley bank was seized by US authorities. JPMorgan has received nearly $46 billion in funds and Fidelity has recorded inflows of nearly $37 billion, according to iMoneyNet data as of Friday morning.
Money market funds typically hold very low-risk assets that are easy to buy and sell, including short-term US government debt. The yields available on these vehicles are now the best in years because they are rising with interest rates, which were raised to a 15-year high by the US Federal Reserve in its quest to curb inflation. There were lower net outflows in January and February, setting the stage for the strongest quarter for US money funds since the coronavirus pandemic struck three years ago.
Inflows have accelerated in the past two weeks, especially from large depositors looking for safe havens. While US officials agreed to back all deposits at SVB and Signature Bank, which failed the same weekend, they did not guarantee those over $250,000 in other institutions.
“We’re seeing shifts in money market funds by every segment of investors,” said Ashish Shah, chief investment officer for public investments at Goldman Sachs Asset Management. “Given the volatility we’re seeing in the market, every investor has to ask themselves: Does my monetary risk profile (my overall risk profile) match, and am I sufficiently diversified among the options?”
An increase in inflows this month helped push total assets in money boxes to a record $5.1 trillion on Wednesday, according to research from Bank of America.
Data from the Investment Company Institute shows that money is flowing specifically into funds with US government debt, which are considered the safest destinations. The so-called principal funds, which hold bank debt and corporate paper, have had small outflows. The largest inflows went to funds linked to the leading Wall Street banks and the largest investment houses.
Federal Reserve data released on Friday showed bank deposits decreased in the week to March 15, from $17.6 trillion to $17.5 trillion, and deposits at small banks fell from $5.6 trillion to $5.4 trillion.
Neel Kashkari, president of the Minneapolis Federal Reserve, said Sunday that stresses in the banking sector have brought the United States closer to recession.
“It definitely brings us closer,” Keshkari said on CBS’s Face the Nation. “What is not clear to us is the extent to which these banking pressures lead to a full-scale credit crunch.”
Sarah Devereux, global head of the fixed income group at Vanguard, said: “Money market funds have seen notable inflows in recent weeks, with the largest inflows going to government money market funds. Part of that is due to the drive to quality after the panic over bank closures, but also because yields Money markets are very attractive right now.”
Its group earned nearly $12 billion in inflows, putting it in sixth place behind the top three, Charles Schwab and Federated Hermes.
ICI data shows that the bulk of inflows are coming from institutional investors but retail clients are also turning to funds of money.
Andrzej Skiba, BlueBay US head of fixed income at RBC Global Asset Management, said: “When you have tremors in markets with a high degree of uncertainty around key parts of the economy and around the world, not just in the US, the impulse is to go safety.”
“Looking at the returns on offer, money market funds not only offer a good return, but also a lot of security for investors,” Skiba added.
He said a lot of the inflows are being invested in a record issue of the Fed’s home loan – it’s responding to massive demand for liquidity from its member banks trying to reassure depositors of their stability.
“We generally see strong demand in the money markets, in part because of the strong returns on offer, while in part reflecting the large amount of liquidity that the funds provide to both institutional and retail investors, even in (or especially amidst) volatile markets,” Skiba said.
International money market funds, smaller to begin with, are seeing a less pronounced trend. But BlackRock’s international funds have received $16 billion in international inflows since March 9, and GSAM has received $6 billion, according to iMoneyNet.
Additional reporting by Felicia Schwartz in Washington
This article has been revised after publication to update the total amount of money market fund inflows so far in March