BlackRock: FNAV a Surmountable Shift
BlackRock posted a primer in its "Cash Academy" entitled, "Floating Net Asset Value: A Surmountable Shift." It reads, "One of the more significant changes to come out of U.S. money market fund reform is the requirement for Prime and Municipal Institutional Money market funds to adopt a floating rate net asset value (with measurement to the fourth rather than the second decimal place) by October 2016.... While this represents a shift from current constant net asset value practices, we believe the ultimate impact for investors will generally be relatively small." Under Key Takeaways, it says, "We expect the change to an FNAV is not likely to result in sudden material swings in the net asset value (NAV) for Prime Institutional funds. We expect financial consequences from the implementation of FNAV accounting to be minimal, even in a rising rate environment. We recommend Cash investors evaluate their Investment Policy Statements for language." BlackRock writes on the Tax and Accounting Impact, "The U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued a proposal for simplified tax accounting for FNAV MMFs. View the proposal here. Look for more information as the proposals are finalized. The Securities and Exchange Commission, which has authority to set accounting standards, clarified that FNAV MMFs will be treated as cash equivalents. The IRS issued a revenue procedure that exempts shareholders of FNAV MMFs from the wash sale rule." In other news, Moody's issued a release, "US dollar-denominated money market funds to see significant outflows in Q2 2016." It states, "Up to 50% of remaining investor assets will likely leave US prime money market funds ahead of major regulatory reforms in October, says Moody's Investors Service. However, demand for euro prime funds is expected to be resilient despite record low yields. Total assets in the ten largest Moody's-rated offshore US Dollar prime funds fell 10% in 1Q 2016 as investors sought out higher yielding opportunities for their cash following year-end. "We expect US prime fund managers to limit investments in securities with maturities past October as they proceed cautiously in anticipation of the switch to floating net asset values," says Rory Callagy, a Vice President -- Senior Credit Officer at Moody's. "However, demand for euro prime funds is resilient amid uncertainties around Brexit and a lack of comparable investment alternatives," adds Vanessa Robert, a Vice President -- Senior Credit Officer.... Investors will likely continue to use euro-denominated MMFs as higher-yielding liquid vehicles with greater diversification than bank deposits. To date, this dynamic has kept euro CNAV MMFs' collective assets under management (AUM) from falling much below EUR70 billion. In anticipation of the Brexit referendum in June, Moody's expects euro and sterling portfolio managers to increase their funds' liquidity and exposure to government and agency securities, a positive for the funds' credit quality and market risk profiles. The rating agency also expects these funds to be a safe haven ahead of the Brexit vote.... Collectively, the Sterling prime money market funds' AUM increased to GBP156 billion at the end of Q1 from GBP151 billion at the end of the year, while the Moody's rated funds experienced GBP877 million outflows to GBP102 billion during Q1."
