Fed on the Move

In an effort to prepare for possible tax repatriation and the transition from high government money market fund balances to a higher yielding alternative, members reviewed their investment options during the H1 gathering at Autodesk. Here are some themes from the discussion:

Money market fund reform has provided challenges and opportunities, noted Ben Campbell, CEO and CIO of Capital Advisors Group. There’s no doubt that MMF reform has significantly impacted investment management. Because of the regulation’s fees, gates and floating NAV, the market has seen a shift in the investment landscape, with over a trillion dollars leaving the funds. Several sessions were dedicated to filling the prime fund void.

Fed is on the move in more ways than increasing Fed Fund Rates. The market is pricing in 100% probability of a June Fed rate increase, and three more increases are expected before January 2018. Adjusting Fed rates is certainly the most visible and well-reported mechanism the Fed uses to control interest rates. However, it’s also important to keep an eye on the Fed’s balance sheet normalization, said Lance Pan, Director of Investment Research at Capital Advisors Group. The divesture of the $4.5 billion in assets on the balance sheet will have significant implications for the fixed income market. Mr. Pan walked members through the impact this divesture will have on the corporate investment portfolio.