Below, we excerpt the second half of our May Money Fund Intelligence profile, "Dreyfus Still Roaring at 40 Years; Cardona & Larkin," an interview with Charles Cardona, Chief Executive Officer of BNY Mellon Cash Investment Strategies (CIS) and President of The Dreyfus Corporation, and Patricia Larkin, CIO of the Dreyfus CIS Money Market Mutual Funds.... MFI: What are funds buying now? Larkin: We continue to buy the largest and best-of-class institutions. We have had to adjust to those issuers no longer in the marketplace. Issuance has shifted away from traditional commercial paper borrowers to larger institutional wholesale funding and asset-backed commercial paper programs. We are active in following all 2a-7 eligible securities with a dedicated team of credit research and risk analysts who assist us in maintaining a robust approval list. We remain very disciplined and focused on ample liquidity both in the levels we elect to run and the quality in which we invest.
MFI: Are there any customer concerns currently? Cardona: The Eurozone still comes up in conversation, particularly any time there is a new headline around it. We've been pretty cautious on Europe throughout the crisis with respect to the holdings in our funds. There are certainly some names from a fundamental credit perspective that we think are sound, but we have concerns about trying to handicap the potential political events that may occur. The fact that there is still $2.5-2.6 trillion sitting in money market funds, at these levels of rates, tells you how much people really like these products.
MFI: Are brokerages and intermediaries concerned about potential changes? Cardona: We work with a broad mix of clients, including intermediaries, platforms and record-keepers. All have indicated that a fluctuating NAV would create significant challenges and would require a significant investment in order to support a fluctuating share value structure on their platforms. This is an area the entire industry has raised as a major concern to the regulators -- we are trying to educate them about these challenges in order to arrive at a solution that could work for all constituents.
MFI: Tell us about the impact and prevalence of fee waivers. Cardona: We have a lot of scale, which is good. We remain profitable, but we continue to experience fee waivers given the level of rates. That pressure is not really abating, but we continue to manage through it, recognizing that at some point rates will go up again, and business will ultimately be even more profitable.
MFI: What do you expect might happen with regulations? Cardona: We have been very consistent in our views towards a combination of sensible reforms that would continue to benefit issuers and remain attractive to investors. Clearly, the regulators continue to be concerned primarily about the potential for run risk on prime funds as experienced at the height of the 2008 financial crisis. If you look at our comment letter on the proposed FSOC revisions, you'll see that we're actually not adverse to further reform to 2a-7 which would provide for increased liquidity, enhanced risk control and greater transparency. We believe this would allow the industry to continue to offer the convenience of $1.00 amortized cost pricing in a way that would address concerns articulated by the regulators.
MFI: Do you think the imposition of a floating NAV would be a critical blow to money funds? Cardona: If these changes apply to prime funds only, I think a portion of today's prime fund assets could migrate to government or treasury funds if they continue to operate largely as they do today. Some clients have told us that if fluctuating share value pricing is accompanied with relief from gains and losses, they would continue to use the products. Regardless of the outcome, we will continue to work within the regulatory framework and continue to champion greater transparency, increased liquidity and robust risk analytics -- all that is in the best interests of our shareholders. We'll see.
