The May issue of the Association for Financial Professionals' AFP Exchange features the story, "How New MMF Rules May Impact Delta's Cash Portfolio," a Q&A with Barbara Quiroga, director of cash operations for Delta Air Lines. AFP asks, "What potential impact do you see the new regulations having on your cash portfolio at Delta?" Quiroga answers, "Delta has relied heavily on MMFs for its operational daily cash investments. We have already seen some funds closing/selling their funds (Reich & Tang) or changing their strategy (Fidelity) that had an impact on our operational cash investments. Delta will have to assess if prime MMFs will still be the optimal investment vehicle for operational cash after all regulatory changes are implemented and we have a better understanding of how the daily investments or redemptions will work." We also preview this week's New York Cash Exchange conference below, which features a number of sessions on cash investments, including our Peter Crane's "Money Fund Rates & Regulations Roundtable," which takes place Wednesday, June 27 at 9:00am at the New York Hilton.
The AFP interview with Delta asks, "Do you think these potential changes will cause you to make modifications to your investment policy? Quiroga says, "It might. As of now we do not foresee a need to change the investment policy but if new investment vehicles pop up then we will have to make sure we incorporate them in our investment policy. Delta modified its investment policy in 2014 in anticipation of the regulatory changes to make sure we had the flexibility to segregate our cash in buckets. This allowed us to segregate part of our cash into separately managed accounts with a more strategic short-term duration view and reduce the investments in MMFs."
The piece also asks, "Are you able to bucket your cash to differentiate between daily operating, core and longer term strategic cash? Where -- what bucket -- do you see the biggest impact with the new regulations?" Quiroga responds, "We do bucket our cash into two main buckets: separately managed accounts for short-term duration strategies and our operational daily cash. For Delta, the biggest impact will be on the daily operational cash as we rely heavily on MMFs and bank deposits. With regulatory changes affecting how banks view their balance sheet we find that some banks welcome the cash deposits but others don't. On MMFs we are on a 'wait-and-see' mode right now but we are concerned about the mechanics of the ins and outs of money to the MMFs as well as the impact of gates and fees. Liquidity and flexibility are important for the daily cash and we need to make sure that the mechanics work well for us."
AFP queries, "What do you think may have a larger impact on companies like Delta -- institutional prime funds floating the NAV or the liquidity restrictions such as fees and gates? Quiroga tells AFP Exchange, "For Delta, the floating NAV is not necessarily the concern. Although the mechanics of how that will work on the daily movements of funds does concern us. Gates and fees are a concern to us. Since preservation of principal and access to cash are the primary objectives of our daily operational cash investments, gates and fees are of great concern and it might lead us to other forms of investments like government funds."
Finally, AFP asks, "Do you have an opinion on what type of spread it would take (between prime funds and government funds) to keep/move investors back into institutional prime funds? Quiroga answers, "I am not sure that we would look at it that way but it does make sense that there should be a significant difference between government funds and prime funds. For us it is really about what makes sense for our daily cash needs and if we can't get comfortable with the gates and fees then we would have to look for an alternative."
One of the largest events for corporate treasurers, the New York Cash Exchange, takes place this Wednesday and Thursday at the New York Hilton. Many of the largest institutional money market funds providers will be exhibiting, and the conference will feature half a dozen sessions involving money fund and cash investing. Crane Data's Peter Crane will lead the first "cash" session, entitled, "Money Fund Rates & Regulations Roundtable," which will also feature BlackRock's Ronald Hill, Citi's Andrew Hollenhorst, and J.P. Morgan Asset Management's Craig Ferrero.
Other Wednesday (5/27) NY Cash talks include: "Changing Dynamics in the Corporate Liquidity Landscape," featuring Jim Griffin of Goldman Sachs Asset Management and Crystal McGowan of Vornado Realty Trust; "Managing Liquidity: Be Prepared for the New Reality," with David Miller of the Hunt Companies and Michael Morin of Fidelity Investments; "Adapting to Change: The Power of Portals," presented by Gregory Fortuna of State Street's Fund Connect.
Thursday's NYCE talks include: "Panel - The Trinity of Challenges in Cash Management, with Donald Cooley and Will Goldthwait of SSGA and Chris Forno of Doral Bank USA; and, "Cash Investment Policies Post Money Fund Reform," featuring Tony Carfang of Treasury Strategies and Greg Fayvilevich of Fitch Ratings. Crane Data will be exhibiting at Booth #210, so please stop by to visit if you're at the show!
Finally, we also wanted to remind anyone planning on attending our Crane's Money Fund Symposium next month (June 24-26) at the Minneapolis Hilton to please make your hotel reservations and register soon! Our discounted hotel rate expires this week and we expect the hotel to be sold out shortly. (Visit here to make Hotel reservations and here for the conference agenda.) See you next month in Minneapolis!
