Bringing you live news and features since 2006 

Fund managers begin positioning for money fund reform, says Fitch

RELATED TOPICS​

Six months after the SEC voted on reforms, money fund managers are beginning to take steps to comply with the new rules and position themselves to retain and attract clients, according to Fitch.

While clients continue to be patient and industry assets remain stable, fund managers are launching, closing, and merging funds, updating investment guidelines, and working through the operational aspects of reform.

Despite widespread predictions of outflows from institutional prime money funds – those most affected by the reforms – asset flows have been positive so far. According to iMoneyNet data, total money fund assets increased by 6.2% since July 2014, when the reforms were passed, with institutional government funds growing faster than prime, 11% to 4.8%. Money fund flows typically incorporate seasonal factors, and it is too early to tell if the stronger flows into government funds (which are less impacted by reforms) are indicative of clients repositioning their cash holdings in response to reform. Investors are likely to shift some cash out of institutional prime funds closer to the effective date of the main thrust of the reforms, in October 2016.

Money fund managers are also taking steps to restructure their funds to gain a competitive position. Fidelity recently announced that it will convert a number of large retail prime money funds (with assets north of $100 billion) to government funds. Fidelity said many of its clients had indicated that they would prefer the stable net asset value (NAV) and exemption from the fees and gates provisions of the reform that government funds offer. This was also Goldman Sachs' rationale when it noted recently that its government funds are now in compliance with the reforms and that they have opted out of the fees and gates provision. Finally, a number of money fund managers have announced they will be merging or liquidating funds that have not attracted enough assets, with some small managers like Touchstone Investments exiting the business as the burdens and costs of compliance with the new reforms prove too high.

While government funds are expected to take up most of the money leaving prime money funds, some cash will likely find its way to other short-term products, including ultra-short bond funds, private 3c-7 money funds, and separately managed accounts. Fund managers have been discussing these options over the past few months with clients that may not want to remain in prime money funds with a floating NAV.

A few managers have launched new ultra-short bond funds in recent months as an alternative to prime money funds. The bond funds, launched by large money fund managers like Goldman Sachs, Invesco, and Western Asset, typically strive to offer higher yields than prime money funds, and take slightly more risk. For example, the Goldman Sachs Limited Maturity Obligations Fund, rated 'AAA/V1' by Fitch, is allowed by prospectus to have a weighted average maturity (WAM) of as much as 270 days, compared to a maximum of 60 days for money funds.

Latest News

News came last night from the US that the SEC has approved CBOE’s proposal to list and trade VanEck’s spot..
Irish domiciled funds surpassed EUR4.3 trillion AuM (Assets under Management) at end-March 2024, a 15 per cent increase in net..
European white label ETF platform, HANetf, has announced its total assets under management (AUM) has now exceeded USD4.31 billion...
New research from European ETF provider Tabula Investment Management shows investors are expecting improvements in ESG from the gold mining..

Related Articles

Timothy Rotolo, Range Funds
In 2023, Timothy Rotolo launched his business, Range Fund Holdings, the parent company for Range Indices and Range ETFs, followed...
Dan Miller, IQ-EQ
With just over a week to go till T+1 settlement begins in North America, Canada and Mexico, time is of...
Emily Spurling, Nasdaq
Last October’s ETF Express US Awards 2023 found Nasdaq winning Best Index Provider – ESG ETFs and Best Index Provider...
Vinit Srivistava, MerQube
Index provider, MerQube, launched in 2019, with the aim of providing a “technology-driven answer to the most complex, rules-based investment...
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by