Evening Brief – 03.27.23

Following the collapse of Silicon Valley Bank (SVB) and ensuing banking crisis, the popularity of US money market funds has skyrocketed. According to Emerging Portfolio Fund Research (EPFR) data, more than $286 billion has been invested in these funds so far in March. The inflows are the highest seen in a month since the emergence of Covid.

The top beneficiaries of this dash to cash have been Goldman Sachs, JPMorgan Chase and Fidelity. Goldman’s money funds have grown by 13%, receiving $52 billion. JPMorgan’s funds have seen inflows of nearly $46 billion, while Fidelity has enjoyed nearly $37 billion.

No one has come out ahead following SVB’s fall, and that includes the Wall Street bank titans whose money market funds are rapidly expanding. The fragile financial sector has shelved a potential IPO revival. Meanwhile, similarly sized regional banks have teetered on the brink of insolvency, and big banks would rather introduce various financial arrangements to keep these banks afloat than relive the 2008 global financial crisis and buy them.

Investors rushing into money market funds are specifically targeting ones that hold US government debt. These funds are offering their best yields in years, as the Federal Reserve continues to raise interest rates in a bid to curb inflation. In the seven days leading up to March 22, total money market fund assets increased by $117.42 billion to $5.13 trillion, according to Investment Company Institute (ICI) data.

Money market funds typically hold very low-risk assets that are easy to buy and sell, including short-dated US government debt. The current crisis in the banking sector has only served to amplify these qualities and we are likely to see this trend continue in the months ahead.