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The Paths Forward

2 min read

Abstract

As large money market fund sponsors begin to release their new fund directions, the wait may be over for cash investors to get their own strategies in place. The recent announcements allow us to gauge different paths forward for the industry and help investors gain insight into what to expect. Among a lineup of alternatives options, separately managed accounts may provide investors the necessary supplemental capacity to both satisfy liquidity needs and opportunistically take advantage of market dislocations. Nine things we learned from the recent announcements include:

  1. The most direct route to stable NAVs with no “fees and gates” is through a government fund.
  2. All existing funds and shareholders must reconfirm their identities.
  3. Look out for government funds that may opt in to “fees and gates”.
  4. A 60-day maximum maturity “stable NAV” fund is still a floating NAV fund.
  5. Fund sponsors go their separate ways in retaining existing institutional shareholders.
  6. Fund choices will be more limited, especially for municipal fund shareholders.
  7. Executing structural changes is time consuming.
  8. Changes may come several months before October 14, 2016.
  9. There are many choices, but no clear winners.

Introduction

Structural reforms on money market funds adopted by the SEC in July 2014 were widely expected to bring about comprehensive changes to the popular savings vehicle. Cash investors, especially shareholders of institutional prime funds, were anxious about a world of floating net asset values (NAVs), liquidity fees and redemption gates (fees & gates). For much of the last six months, they sat and waited for some information upon which they could act.
Now, the wait may be over.
Over the last month or so, three fund companies provided significant fund updates that may lay paths to a new world of liquidity investments effective October 14, 2016. Fidelity, JPMorgan, and Federated together manage $884 billion, or one third of the $2.7 trillion of U.S. money market fund assets, and rank as the 1st, 2nd and 4th largest managers by assets, respectively, as of January 31, 2015 . Thanks to their dominant market.
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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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