Vanguard Shifting Prime Money Market Fund to Safer U.S.-Backed Investments


  • Next month, Vanguard will transition its $125.3 billion Prime Money Market Fund into a government money market fund and rename it the Vanguard Cash Reserves Federal Money Market Fund.
  • Prime fund investors will be eligible for lower fees, as Vanguard will reduce the investment minimum for its Prime Admiral Shares from $5 million to $3,000, effective Aug. 27.
  • Northern Trust closed a money market fund earlier this year.

Modifications are coming for risk-averse Vanguard financiers who are parking cash.

Late next month, Lead will transition its $125.3 billion Prime Money Market Fund to a federal government money market fund, investing “nearly solely” in U.S. federal government securities, cash and repurchase arrangements backed by government securities or money.

The fund will be relabelled the Lead Money Reserves Federal Cash Market Fund, the company stated.

Money market funds often offer investors a haven to stow away cash and get a little yield, also.

While some of these funds purchase government securities and cash, others– consisting of prime funds– often buy industrial paper, which are short-term notes released by the business.

“Lead financiers focus on capital preservation for their money market financial investments, and we believe that the benefits of even the most conservatively managed prime funds are no longer worth the danger,” stated Greg Davis, Lead chief investment officer, in a statement.

“We are committed to structuring and handling our money market funds prudently while maintaining their safety and liquidity, and are positive these changes will best position the fund to continue to fulfill the expectations of our clients, while still offering a competitive yield over the long term,” he said.

March shake-up

Vanguard isn’t alone among supervisors backing out of a prime fund in current months, said Pete Crane, president of Crane Data.

Northern Trust revealed in May that it would stop taking brand-new investments in its Northern Institutional Prime Responsibilities Portfolio and start liquidation on July 10, according to a filing with the Securities and Exchange Commission. The fund had $ 829.5 million since June 30.

These modifications all follow the market havoc that went on this spring, said Crane.

As investors got away from prime money market funds in March, the Federal Reserve stepped in to offer the Cash Market Fund Liquidity Center to assist funds to meet those redemption requests.

Usually, the funds would have needed to sell a few of their possessions in order to squander investors, but the funds faced illiquidity in the middle of the coronavirus outbreak.

The point of this relocation was to stabilize the market and avert a repeat of the 2008 cash market fund crisis.

On Sept. 16, 2008, the Reserve Main Fund’s net asset worth fell from a consistent $1 to 97 cents, consequently “breaking the buck.” Institutional financiers disposed of the fund– which held bonds from Lehman Brothers– after the bank submitted for insolvency.

A series of regulative modifications started later, including the imposition of liquidity charges and redemption gates, causing an overhaul of cash market funds through 2016.

The choice by asset managers to pull some of their prime funds this year is “all about March and the Fed assistance that’s needed to support the market,” said Crane.

Supervisors are worried that this spring’s shake-up in money market funds might lead to further regulative modifications, he stated.

” They probably would rather duck out of that debate and not be involved,” Crane stated.

Lower fees ahead

In addition to its fund announcement, Vanguard also said it would likewise make prime fund financiers eligible for lower costs by minimizing the investment minimum for its prime Admiral shares –– its more affordable share class– to $3,000 from $5 million,

Prime Admiral shares carry a cost ratio of 0.10%, compared to the 0.16% expense ratio on prime Financier shares, according to Vanguard.

Investors can switch to Admiral shares by going to Those who don’t make the change on their own will be immediately converted from September 2020 through next year.

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