Debbie Cunningham: Sure, Patrick. Generally speaking, when interest rates are increasing because money funds have a weighted average maturity that’s something greater than a day. They lag the direct market, and so for many of our institutional clients that have the capability of going into the direct market, they might do just exactly that rather than go into money market funds that are increasing, but are increasing with, let’s call it, a one-month lag versus the direct market, where money funds generally start to excel and exceed from a growth perspective is when interest rates have, kind of reached a plateau and when they start going back down the other side. Now, the caveat to that is that they’re not going to zero, that they’re going from 5 to 4 to 3, somewhere in that neighborhood.
And in those cases, that’s when much more outsized growth generally happens from an industry and from our own experience here at FHI versus the deposit market at this point. Overall, deposits in the U.S. are down about a trillion dollars, but they’re still very large. And again, looking at the rates on deposits versus the rates on money market funds, they have increased during the first quarter, we’re up to about 38% from a deposit beta perspective versus what’s happening in the direct market, the Fed funds market. So, 38% of the increase is being captured in deposits. As such, I think that the average deposit rate for the fourth quarter was up to about 70 basis points, but compare that to where we are from a fund yield perspective, which is essentially all north of 4% and heading towards 5% vastly different.
So, being a trillion down in deposits is just, sort of a drop in the bucket. The expectation would be that we’ll continue to fuel outflows with that deposit beta being lower and a very natural recipient of those outflows would be money market funds.
Tom Donahue: And if I can indulge this history, which I’ve used before, Patrick, I think it’s informative. The Fed increase that was Q4 2016 to Q4 2018, we had a little pause and then the money €“ our money market assets increased by 15% from about 210 billion to 240 billion, and the industry followed a very similar pattern. They were up 11%, naturally we were up 15%. Then you go to the next one. Our assets went up about 22% through the third quarter of 2019, and the industry at that time did about 14%. So, depending on how big people are talking about numbers, that those are what happened. The next point I would make is that it matters a lot who your clients are and what is their history. And we have unique clients, others have unique clients and I can’t comment on the overall situation with others clientele. And actually, we have a lot of the same ones, but it matters a lot, if you have a lot of trust departments, a lot of intermediaries and things like that.
Patrick Davitt: Very helpful. Thanks.
Operator: There appear to be no further questions in queue. I would like to hand the call back over to Ray Hanley for any closing remarks.
Ray Hanley: Well, thank you. That concludes our call and we appreciate you joining us.
Operator: Thank you. This concludes today’s conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
