ICD Unveils MMF Reform Solutions: NAVs, Flows, Liquidity, Gains; AFP

A press release entitled, “ICD Releases Essential MMF Reform Solutions for Corporations, which says, “Institutional Cash Distributors (ICD) today announced the release of Transparency Plus 6.0 providing several key on-line and reporting enhancements that are necessary for corporate treasury practitioners to effectively manage portfolios that include institutional prime money market funds.” Among the highlights: it “enables users to compare and contrast historical Net Asset Value Pricing, Asset Flows and Liquidity of institutional prime money market funds” and its “new Gain/Loss Report enables corporations to efficiently take advantage of the Simplified Tax Accounting Method for institutional prime money market funds.” (ICD revealed the features at the AFP Annual Conference, which takes place this week in Orlando. We also briefly cover some of the conference content below.)

ICD’s release explains, “The MMF Reform enhancement release is the latest iteration of Transparency Plus, which in 2010 was the first risk management exposure analytics application for institutional cash investments. New SEC 2a-7 rules, effective October 14, 2016, require institutional prime money market funds to maintain a variable, or floating net asset value to the fourth decimal place (e.g., 1.0000), where they previously were rounded to the second decimal place (e.g., $1.00); and providing institutional prime money market fund boards with the ability to impose fees of up to 2% and gates of up to ten days if weekly liquidity falls below 30% and the board feels it is in the best interest of the fund’s shareholders.”

ICD Senior Vice President & Head of Global Trading, Sebastian Ramos said, “With the new SEC 2a-7 Rules in place, Institutional Prime MMF investors should look to maintain diversified portfolios and use the latest compliance, reporting and monitoring tools to ensure portfolios meet their corporation’s investment objectives and risk tolerance.”

The release adds, “ICD Portal’s Liquidity Compliance Rules will prevent or limit trading in MMFs where liquidity is below client-established levels. Alerts are also sent to clients with positions in MMFs that fall below client-established liquidity minimums. Transparency Plus’s NFL Report compares Net Asset Value Pricing, Net Asset Flow and Liquidity for MMFs in client actual and hypothetical portfolios, enabling fund comparisons on these important metrics. ICD Portal generates Gain/Loss reports that simplify corporate tax and financial reporting for institutional prime money market funds using the IRS-approved Simplified Tax Accounting Method. Gain/Loss report ranges can be customized by month, quarter, year or any specified time period.”

“Institutional prime money market funds will continue to be an important part of corporate short-term portfolios, especially when the spreads widen. This release is another example of ICD’s commitment to provide superior products and extraordinary client service,” said ICD Chairman, Tom Newton.

In other news, the Association for Financial Professionals’ Annual Conference was surprisingly short on money market fund content this year with just two sessions involving cash investing. The first, “Managing Liquidity in a Post-Reform World, was described as, “Safely managing liquidity of corporate cash portfolios is a chief challenge corporates face. Rising interest rates, money market fund reforms, and new bank regulations have radically altered the cash management landscape. With the introduction of floating-NAV money market funds in October 2016, the final shoe may have dropped following years of changes. What can practitioners except in 2017? This moderated panel examines short-term investment options from the practitioner’s perspective across industries, including automobile manufacturing, biotechnology and real estate.”

The session, moderated by Benjamin Campbell of Capital Advisors Group, included the speakers Klas Holmlund of Vertex Pharmaceuticals, Kimberly Kelly-Lippert, American Honda Motor Company, and David Miller of Hunt Companies, Inc. Lippert commented, “They [Prime money funds] had a terrific run [but] that era is over.” Lippert says she stuck with Prime throughout the transition and continues to invest in these funds, citing education and support by portals and funds as reassuring factors in their decision.

The others, however, moved out of Prime and remain out. Miller commented that the use of any fee or gate would mean liquidation for a fund. To make it simple, he said, “Today, most of our cash sits in bank deposits or government funds.”

Of particular interest was an audience survey, which asked what corporate treasurers were most likely to consider in the next 6 months. The responses indicated that approximately 31% would consider separately managed accounts, 19% would consider FDIC insured accounts, 15% would consider FNAV money funds, 14% would consider ultra-short bond funds, and 12% would consider direct investments.

The other session, entitled, “Offshore Cash: What Does the Future Hold,” featured Britta Hion of BlackRock, Douglas Tropp of Priceline Group, and Geoffrey Nolan of QUALCOMM Inc. This session’s description says, “US corporations’ cash reserves are at historic highs, with record amounts held offshore. Given the current Euro rate environment, how are corporations investing their offshore cash? How do they deal with the diverging rate dynamics globally? Is there an increase in the use of SMAs and (long-term) repos in Europe in a quest to mitigate negative rates and boost returns? How has the issuer landscape changed in Europe since the crisis in 2011? This interactive sessions answers these and other questions to help corporates best utilize offshore cash.”