In April, First American Funds announced their plans not to impose gates or fees on its government money market funds once SEC reforms go into effect in 2016, as we reported in our April 1 "News," "First American Funds Says No Fees and Gates; Plotnik on RRP." In their latest comment, entitled, "U.S. Bancorp Asset Management Discusses Plans for First American Funds," Lou Martine, Senior Managing Director, Head of Distribution at US Bancorp Asset Management, elaborated further on the firm's post-reform plans, which include the possibility of new products such as 60-day maximum maturity funds. First American is the 14th largest US MMF manager with $41.3 billion in MMF assets. (They are also a Platinum sponsor of next month's Minneapolis-based Crane's Money Fund Symposium.) Also, we report on Amundi's decision to activate the Reverse Distribution mechanism for its E3.0 billion Money Markets Funds Short Term Euro fund.
Writes Martine, "U.S. Bancorp Asset Management, Inc. is fully committed to being a leading provider of short-term cash management solutions. As the investment advisor to the First American Funds, we are working diligently to make certain the funds will be in compliance with the money market fund reforms announced by the Securities and Exchange Commission (SEC) last summer. We also are considering several additions to our ultimate product line to ensure that we remain positioned to offer investment products and solutions to meet investors' short-term cash investment needs."
He explains, "To that end, we have had in-depth discussions with our clients and intermediaries to determine their needs and concerns in light of the reforms. As a result of these discussions -- as well as additional due diligence and the analysis of additional SEC guidance -- we are currently considering the following changes to the First American Funds line-up. Importantly, we note that our plans may change between now and October 2016 and that any such plans are subject to the approval of the First American Funds' Board of Directors."
First he discussed the First American Prime Obligations Fund. He writes, "The SEC made clear in its release that fund families choosing to offer a retail prime fund with a stable NAV will need to have policies and procedures reasonably designed to limit all beneficial holders to natural persons. We currently plan to offer both an institutional prime fund with a floating NAV and a retail prime fund with a stable NAV to meet the needs of current and future clients. Both the retail and institutional funds would offer same day liquidity."
The comment continues, "A paramount goal in the management of our institutional prime fund would be to seek to minimize variations in NAV per share, under the umbrella of our current management philosophy of principal preservation, liquidity and risk-adjusted yield. Note that the earliest we would start to float the institutional fund's NAV would be late third quarter 2016. We also continue to evaluate the need for intra-day NAV calculation(s) for our institutional prime fund. In doing so, we are taking into primary consideration our clients' liquidity and settlement needs, while being considerate of fund expenses and other operational factors."
Next Martine commented on the First American Tax Free Obligations Fund. "The requirements for tax free funds under the new rules are the same as for prime funds. We have similar plans to offer both an institutional tax free fund and a retail tax free fund, both of which would offer same day liquidity. The retail tax free fund would remain a stable NAV fund, while the institutional tax free fund would have a floating NAV. Once again, the primary goal in the management of our institutional tax free fund would be to seek to minimize variations in NAV per share, while keeping true to our core philosophy of principal preservation, liquidity and risk-adjusted yield. Similar to our institutional prime fund, the earliest we would start to float the NAV on the institutional tax free fund would be late third quarter 2016."
He also discussed the First American Government Obligations, Treasury Obligations, and U.S. Treasury Money Market funds. "As previously announced, the First American Government Obligations Fund, Treasury Obligations Fund and U.S. Treasury Money Market Fund (collectively, the Government Funds) have no intention to impose redemption gates and liquidity fees. In addition, as permitted under the new rules, our Government Funds will remain stable NAV funds, pricing and transacting at $1.00. Our Government Funds have already been operating in compliance with the requirement that, effective October 2016, government money market funds hold at least 99.5% of their total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized fully by U.S. government securities."
Further, Martine tells us about New Funds Under Consideration. "We are exploring the possibility of offering other prime products for institutional use, such as a 60-day maximum maturity fund, which would typically have the ability to use amortized cost to value individual portfolio securities and thus further lower the risk of NAV variability. We are also considering private funds for qualified institutional investors, which would be organized as stable NAV funds and be exempt from redemption gates and liquidity fees. Additionally, an institutional tax free fund wholly invested in 1- and 7-day variable rate demand notes -- with the goal of further limiting the probability of variations in NAV and the imposition of liquidity fees and redemption gates -- is under consideration. As we undertake further dialogue with clients and intermediaries, we will continue to evaluate these and other cash management vehicles that could prove beneficial to our current and future clients."
He concludes, "The new rules affecting money market funds will meaningfully change the nature of prime and tax free money market funds. However, as with all things, change brings opportunity. We remain committed to providing the best cash management products and strategies to our clients, be they through First American money market funds, customized separately-managed accounts or yet-to-be-developed products and strategies. In that vein, we offer the above discussion of our plans for the benefit of our current and future clients. As our plans solidify, you can expect further communication from us."
In other news, Amundi Asset Management issued a bulletin to its investors saying it would activate the Reverse Distribution mechanism on its E3.0 billion Amundi MM Short Term Euro Fund. It says, "The euro-denominated Money Market management has been facing challenging times given the ultra-low rates environment. In response to concerns regarding the threat of deflation and the weakening of growth momentum in Eurozone, the European Central Bank which already cut its Key Rates to record lows in 2014, has launched its expanded asset purchase program (or QE) in March 2015. Those factors are maintaining the short-term rates close to their historical lows and push the Eonia further into negative territory. In order to maintain a stable net asset value of Amundi Money Markets Funds Short Term Euro ("Constant NAV" type of shares only), in the best interests of shareholders, the Board of Directors of the fund has decided to activate -- when necessary -- the Reverse Distribution mechanism as of 2015 June 8."
