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December 06, 2023

Women-led team at Federated Hermes reigns in money market fund boom

Higher yields in money market funds are drawing in new types of customers — including corporations, family offices and even pension funds and endowments — according to Federated Hermes' global liquidity team.

Deborah Cunningham, CIO of global liquidity markets at the $715.2 billion asset management firm, said the yields, which are currently hovering above 5%, have lured both retail and institutional investors away from banks, which offer near zero interest on deposits.

Cunningham said that in the last year and a half alone, there's been a trillion-dollar decrease in bank deposits and a trillion-dollar increase in money funds.

"Is that coincidental? Probably not," she said.

The newfound attraction of money market funds has caught the eye of institutional investors that, in the past, have eschewed them in favor of other investments.

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At Federated Hermes alone, money market assets hit a record high of $525.1 billion in the third quarter this year, up 19% from the previous quarter.

"Five percent rates on cash draws in a lot of people — institutions that traditionally have relied on deposits at banks but see this attractive investment on the other side in the money fund space," said Sue Hill, head of government liquidity at the firm. "The pension and endowment space is not a traditional home for money fund investors. I know there have been allocations we're aware of where that's a part of the market that has been drawn into the space or seen value in the products that we offer."

COVID-19 impact

Aside from the newfound attractiveness of the yields, Cunningham and her team added that the influx of cash into money funds is tied to the amount of cash currently in the market.

Paige Wilhelm, who leads Federated Hermes' prime liquidity group, said there is still a lot of money from the $2.2 trillion pandemic stimulus bill, the CARES Act, in the marketplace, particularly in state government pools.

"During COVID, we had all the fiscal stimulus that came out — we've just seen billions and billions and billions of dollars come into those products from that fiscal stimulus money and it's still sitting there. It hasn't been spent. The majority of it hasn't left," Wilhelm said.

Wilhelm added that the pandemic and the government response to it changed the "entire complexion" of the liquidity market.

"If I think back to the economics books I read in college — you can throw those out the window. Not only did we have a rapidly rising rate environment, but you had all this fiscal stimulus that was thrown into the marketplace. And then (the Fed's) balance sheet looks completely different than it did pre-COVID," Wilhelm said. "It almost feels like now there are so many different levers the Fed can pull and change other than just that fed funds target rate. It makes trying to figure out what's happening in the market a little bit different of a thought process than it was pre-COVID."

Cash is king, or better yet, queen

Cunningham and her team — which she said is roughly 50% women, an unusually high figure for the male-dominated asset management industry — are well-prepared to handle the rapid changes in the liquidity market.

Higher yields may be catching the eye of investors, but Cunningham and her team said they also offer clients innovative ideas, creativity and a wealth of experience navigating various market conditions.

"We have basically been at the forefront of almost any new security that exists in the tax-exempt money markets," said Mary Jo Ochson, who leads Federated Hermes' municipal liquidity team. "Various types of variable-rate demand notes, whether they're synthetic or organic — that has really sort of propelled our success. We've grown a lot this year."

J. Christopher Donahue, chairman, president and CEO of Federated Hermes, called Cunningham and her global liquidity team "all stars."

"They are the best," Donahue said. "We don't use braggadocio often but those (women) are the best. You look at the records and how they tell the story and how they take care of the funds — it's a real prize."

– Erin Arvedlund contributed to this article

Past performance is no guarantee of future results.

Fund and firm assets in the article are as of Sept. 30, 2023.

Views are as of Nov. 17, 2023, and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Past performance is no guarantee of future results.

There is no guarantee that any investment strategy will be successful.

An investment in money market funds is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although some money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these funds.

Source for money market yields is the iMoneyNet First Tier Institutional Category. The current 30-day Net yield for this category as of 12/26/23 is 5.27%. This represents the average 30-Day Net yield for all money market funds in the category and is not representative of any specific investment. Yields for retail and other money market categories may be lower.

Bank products, unlike money market funds, are FDIC insured and may offer fixed rates of return.

Income from tax-exempt money market securities may be subject to the federal alternative minimum tax and state and local taxes.

Investors should carefully consider the fund's investment objectives, risks, charges and expenses before investing. To obtain a summary prospectus or prospectus containing this and other information, contact us or visit FederatedHermes.com/us. Please carefully read the summary prospectus or prospectus before investing.

Federated Hermes, Inc.

1001 Liberty Avenue

Pittsburgh, PA 15222-3779

1-800-341-7400

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Federated Securities Corp., Distributor

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