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Life After Money Fund Reform

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The SEC’s announcement last week that institutional prime money market funds will soon incorporate floating NAVs, along with potential fees and gates on liquidity during times of stress, ends nearly five years of discordant regulatory deliberations. During that time, Capital Advisors Group has been active in the assessment of money fund risks through our FundIQ® services. We have also had a voice in the reform process through our participation in the SEC’s 2011 round table discussion, along with our posted comment letter that the SEC referenced 17 times in their final rule. Throughout this process our thoughts centered on methods to decrease the risks of money funds while preserving their utility.
Regardless of one’s position on the new reforms, for many treasurers the utility of money market funds may be diminished. In a 2012 liquidity survey we conducted with the help of Strategic Treasurer, 43% of respondents stated they would reduce their money fund holdings if a floating NAV was adopted. Now, with fees and gates adopted as well, one must assume that the institutional money market fund investment channel will be materially impacted.

With this change looming two years on the horizon, now is a good time to step back for a fresh perspective on investment alternatives and the relative risks and rewards of this new investment landscape. In this month’s research we analyze the spectrum of surviving cash investment options and offer a historical perspective on the rise – and possible fall – of money funds.

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Best Regards,

Ben Campbell
President & CEO

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