IN on MMF Reform Scramble
Investment News writes "Money-market funds scramble ahead of SEC's floating NAV rule." The article says, "With less than two months remaining before new investor safeguards kick in, the $2.7 trillion money-market fund industry is becoming a radically altered landscape. In an effort to prepare for the Securities and Exchange Commission's Oct. 14 rule changes that will introduce special fees and redemption restrictions, as well as a floating net asset value for some money funds, it has become a state of "money in motion," according to Peter Crane, president of Crane Data. With more than $500 billion having shifted from the affected prime-category money funds into money funds that invest exclusively in government bonds, the total assets in prime money funds dropped below $1 trillion for the first time in 17 years." The IN piece quotes Crane, "We're seeing a massive shift from prime funds to government funds, but underneath it all we're seeing the big sort." It also quotes Jerry Klein, head of the corporate cash management group at HighTower Treasury Partners, "Most of the money that has moved so far has been money that the fund companies have converted from prime funds to government funds, largely through changing the default option on sweep products at brokerage firms.... If they can avoid it, the fund companies don't want to use a money fund that could be subject to exit gates and redemption fees." Finally, Investment News adds, "Mr. Crane said, until recently, the prime fund shrinkage has been driven by fund companies moving money into government funds, but he expects the prime fund space to continue shrinking as we get closer to October and institutional investors start pulling more money out. "We've already seen $500 billion come out of prime funds since October," he said. "I think we could see another $500 billion move out in the next few months." Even though prime funds generally pay a yield premium of about 25 basis points over government funds, that difference isn't considered enough of a spread to derail the direction of asset flows out of prime funds, Mr. Crane said."
