Cash Investors at Crossroads
Treasury and Risk magazine published an article, "Short-Term Investors at Crossroads." It says, "Corporate treasuries continue to stow the majority of their short-term cash in bank deposits, according to a recent survey, and put the largest chunk of the remaining money into money-market funds, a traditional short-term investment option. But those patterns could change in the next year or so as U.S. interest rates rise and new regulations make banks and money funds less hospitable places for corporate funds. "As I talk to treasurers, it's a very much wait-and-see approach," said Tom Hunt, director of treasury services at the Association for Financial Professionals (AFP). "The decisions will get made when all the options are presented to them." It continues, "The outlook for companies' use of money market funds is clouded by new Securities and Exchange Commission regulations requiring prime funds -- those that invest in corporate securities -- to switch to a floating net asset value (NAV) instead of the stable $1-a-share money funds use now. Government money funds are not required to switch to a floating NAV. The rules, which also allow money funds to impose fees and gates in times of market stress, take effect in October 2016. Hunt suggested that as more money funds announce the date when they'll switch prime funds to a floating NAV, more corporate treasuries may make changes. Lee Epstein, CEO at Decision Analytics ... predicted that investors would wait until the last minute to make a move. "If there is any migration, you'll start seeing it next summer, or even after the October 2016 implementation of floating NAV," he said. According to the AFP survey, more than a third (37%) of respondents don't plan any significant changes in the way they invest in prime funds, while just under a third (29%) expect to avoid using prime funds and 17% will move money out of prime funds. Lance Pan, director of research at Capital Advisors Group, expects $600 billion to exit prime funds. Given the possibility that those flows or the rule changes lead to disruption or systems glitches, Pan said, institutional investors should plan for the switch to floating NAV and talk to their fund sponsors sooner rather than later.... Others doubt there will be any large-scale migration out of money funds. "I think investors have a high degree of confidence in money-market funds," said Paul LaRock, a principal at consultancy Treasury Strategies. "I don't see any movement away from money-market funds." He adds, "When interest rates return to historical norms, I think [investors] will largely do what they've done in the past," LaRock said. "Corporates and large nonprofits for their short-term cash will seek the combination of safety, liquidity, and yield they've sought in the past and that is still presented to them by money market funds."
