The 60-Day Prime Fund – A First Look

2 min read

Abstract

As the money market fund industry moves to comply with the SEC Rule 2a-7 amendment, the 60-day maximum maturity prime fund concept has received much public attention. For institutional cash managers faced with a chasm between government and prime funds, the 60-day prime fund may represent a viable middle ground and a market-based solution to price the economic costs of stable NAVs and liquidity fees and gates.
While we like the concept in theory, a number of issues need clarification, among which is the challenge to the $1.0000 goal post with basis point rounding. Some of the other considerations include marketing challenges, the continued presence of liquidity fees and gates, supply constraints, yield trade-offs, intermediaries’ participation and regulators’ responses.

Introduction

With 18 months left before the 2014 money market fund reform takes full effect, a number of large fund sponsors have announced their fund lineups and follow-up strategies. In a February 19 press release, Federated Investors disclosed that it plans to convert “certain existing institutional prime funds to 60-day maximum maturity funds.” The main objective is to continue to offer a “stable” net asset value (NAV) product after institutional prime funds adopt market based NAVs come October 14, 2016.
We found this 60-day prime fund concept intriguing. As corporate treasury professionals start to look more closely at the various alternative liquidity solutions, we will attempt to shed some light on the features, potential applications and challenges of this new product. As the concept is still in development at a number of fund companies, there are more questions than answers today, in our opinion. We may return to the subject in a future installment.
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Lance Pan joined Capital Advisors Group in 2003. As Director of Investment Research and Strategy, Lance assesses the risk and relative value of asset classes and credits, creates advanced credit approval and surveillance procedures, issues credit opinions, and provides investment strategy recommendations. Lance oversees Capital Advisors Group’s Credit Committee.

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