Money Market Funds at the Inflection Point: Opportunities for Cash Investors

The day we’ve all been anticipating is here. SEC-mandated floating net asset values (NAVs), redemption fees and liquidity gates are going into effect at institutional prime money market funds today. But markets have already started to answer our questions about the impact of the changes. And this month’s Capital Advisors Group research report suggests that the impact may be even greater than many of us had expected.

Even before the official implementation of the new rules, there has already been a $659 billion outflow from institutional prime funds—representing over 80 percent of total institutional prime assets industrywide—since July 2014*. Meanwhile, safer but lower-yielding treasury and government money market funds saw a 141 percent increase in balances to $1.5 trillion during the same period**. As a result, overall yields for cash investors in government money funds remain stuck at historic lows.

But there may be a silver lining to be found in this scenario. Institutional investors willing to invest the time to research and establish appropriate credit and risk management protocols may find higher return potential in separate account portfolios containing directly purchased corporate and government securities. In the process, they may be able to mitigate the shareholder risk inherent in money market funds which commingle shareholder assets.

This month’s research report—Money Market Funds at Inflection Point: Declines in Prime Fund Assets and Opportunities for Investors—provides insight into these and other tectonic, once-in-a-generation changes that are fundamentally altering the cash management landscape.

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Best Regards,

Ben Campbell
President & CEO