Bloomberg on Private MMFs
Bloomberg reported, "Federated, BlackRock Mull Private Money Funds Amid Rules." The article says, "Regulators' attempts to prevent another run on the $2.7 trillion money-market fund industry is having some unintended consequences. Some of the largest fund providers, led by Federated Investors Inc. and BlackRock Inc., are considering offering private funds with a fixed $1 dollar share price as an alternative to institutional prime funds that were forced last year to adopt a floating price. Invesco Ltd. is discussing several alternatives with clients, including letting them move money into its existing private pool, said Lu Ann Katz, who heads the firm's global liquidity business. Abandoning the stable share price was among the key changes the U.S. Securities and Exchange Commission introduced last year to make the biggest money funds safer. Opponents unsuccessfully argued that the change could drive large corporations to look for alternatives. If the money managers go ahead with their plans, billions of dollars may end up leaving the regulated funds and move into pools that are largely outside the reach of the SEC." It continues, "Money managers are responding with a range of alternatives before the rule goes into effect October 2016. Fidelity Investments plans to convert several of its prime money market funds to ones that buy only securities issued or backed by the U.S. government.... Others, including Vanguard Group and Legg Mason Inc.'s Western Asset Management Co., are offering ultra-short bond funds with fluctuating share prices for investors who want more yield.... BlackRock plans to give clients a choice of different variations of government, prime, municipal and short-duration funds as well as separate accounts, Tom Callahan, co-head of cash management at the firm, said in a statement. The world's largest money manager is also considering private pools for clients, according to a person familiar with the matter, who asked not to be identified because the plans are preliminary. "We are in active dialogue with our clients, and are learning that different client types have particular sensitivity to different elements of these new regulations," said Callahan, who didn't elaborate beyond the statement. Private pools could be an option for investors who find a floating share price and redemption gates unsettling, but who want higher returns from their money funds, said Invesco's Katz. Federated, one of the largest providers of money-market mutual funds with more than $258 billion of those assets, is giving investors options including separate accounts, offshore funds and government pools, Chris Donahue, chief executive officer of Pittsburgh-based Federated, said in a fourth-quarter earnings call. It is also proposing to limit some of its funds to securities that mature within 60-days since the SEC allows that debt to be valued at cost. "We are also working on developing privately placed funds in attempt to mirror existing Federated money market funds to serve the needs of groups of qualified, usually institutional investors unable to use money funds modified by the new rules," Donahue said."
