Clarity in Money Fund Reform
February brought a string of announcements from several of the largest money fund managers in the country detailing new investment strategies in response to the money fund regulatory overhaul announced by the SEC in 2014. These announcements gave clarity to the changing utility of money market funds and outlined how the investment landscape will be impacted as money fund regulation is adopted in 2016. Up to now, the practical impact of both money fund and banking regulation has been difficult to gauge. However Fidelity Investments, Federated Investors and JP Morgan, together managing over 850 billion in money funds, announced everything from wholesale transfers out of the prime space to the creation of new 60-day final maturity prime funds. The net effect of these actions will be to materially reduce the yield potential of these stable NAV products either through the conversion of prime/corporate funds into government funds, or by shortening the duration of exposures from the current 397 day limit to a final maturity of 60 days. This effectively transitions the utility of money funds from an investment vehicle to a transactional one, similar to a DDA bank deposit. Additional reforms on the banking side are also impacting bank deposits. On February 24th The Wall Street Journal reported that “J.P. Morgan announced that it aims to reduce certain deposits by as much as $100 billion by year-end” as a result of new banking rules that make certain deposits too costly for the bank. Our take away from these announcements is that the investment profiles of money funds and potentially deposits are evolving so materially that a reassessment of one’s investment options is in order. To provide additional detail on these recent announcements and their impact on the short-term investment landscape, we would like to supplement this month’s research with a related research report originally published in August. Together, these will provide a summary of the announced changes as well as an analysis of the available cash investment options in this new era.
Best Regards,
Ben Campbell
President & CEO
Please click here for disclosure information: Our research is for personal, non-commercial use only. You may not copy, distribute or modify content contained on this Website without prior written authorization from Capital Advisors Group. By viewing this Website and/or downloading its content, you agree to the Terms of Use & Privacy Policy.
