Continuing our excerpts from the latest "Comments on Money Market Fund Reform" to the SEC, we review the posting from Invesco, the 15th largest MMF manager. Invesco's Head of Global Liquidity Laurie Brignac says, "For over forty years, Global Liquidity has been a core business at Invesco with over $159.3 billion in liquidity assets as of February 28, 2022, of which $100.5 billion is held in money market funds governed by Rule 2a-7 of the Investment Company Act of 1940, as amended ('Rule 2a-7'). We believe in a disciplined investment process, high credit quality solutions with a keen focus on liquidity, and distinguished client engagement. These factors have led to consistent performance and a successful history of navigating multiple credit and liquidity events. Invesco has a tremendous commitment to the money market fund industry not only in the US, but across the globe." She explains, "Invesco appreciates the opportunity to provide the Commission with our comments on the proposed changes to Rule 2a-7 (the 'Proposed Rule') detailed in the Release; this letter (the 'Comment Letter') addresses some specific issues raised therein. Invesco recognizes that there are critical adjustments that need to be made to previous money market reform measures to make money market funds more resilient to market disruptions so they may continue to provide safe and liquid investments to retail and institutional investors. Invesco generally supports and is largely aligned with the positions expressed by the Investment Company Institute ('ICI') and the Securities Industry and Financial Markets Association ('SIFMA') in their separate comment letters to the Commission regarding the Proposed Rule. Separately from the Release, we believe the broader regulatory focus should be on issues which would improve market structure and liquidity for all participants in the short-term funding markets thereby providing money market fund investors and managers a more stable environment to manage client assets." Brignac comments, "Invesco believes the principal goals of additional money market fund reforms should be: strengthening the ability of money market funds to utilize portfolio liquidity in order to manage redemptions and mitigating the related potential contagion risk; increasing the transparency of money market fund risks and risk management practices, providing shareholders with more certainty and clarity, which are the best mitigants against potential runs; preserving the benefits that money market funds currently offer to investors to the greatest extent possible; preserving money market funds as a key source of funding for the real economy which includes state and local governments, retirement plans, corporations and other entities such as universities and hospitals; and promoting equitable treatment for all money market fund investors by, among other things, ensuring that any extraordinary liquidity costs by money market funds during periods of market stress are borne by the investors generating them and eliminating information advantages." She adds, "Reforms must be carefully tailored to address the particular risks policymakers seek to mitigate. Proposed solutions should be tailored to specific problems or risks. Attempts to craft solutions intended to address broad and ill-defined problems such as 'systemic risk' are doomed to failure, in part because the nature and definition of systemic risk themselves are far from settled. The issues that the proposed reform alternatives are intended to address, such as the risk of money market fund investor runs, are specific in nature and arise in particular circumstances -- namely, during periods of extreme market stress. Any additional reforms implemented to address these issues should be similarly tailored.... Money market funds did not cause the market instability in 2020, and they were only one of many participants in the short-term funding markets; rather it was the unprecedented 'dash for cash' more broadly and uncertainty about access to cash in institutional prime money market funds due to the existing gating mechanism that influenced investor behavior and exacerbated an already unstable market." Brignac writes, "Invesco believes that some significant modifications to the Proposed Rule are necessary in order for advisers to retain the necessary flexibility to satisfy their fiduciary obligation of managing their client's assets with the objective of portfolio safety and liquidity as paramount under ever-changing market conditions. In summary, our views on the reforms included in the Proposed Rule are as follows: We support the removal of redemption gates for all money market funds. However, as a preferred alternative to swing pricing, liquidity fees could provide an appropriate and effective means to ensure the same regulatory outcomes, i.e. that the extra costs associated with raising liquidity to meet fund redemptions during times of market stress are borne by those responsible for them. The removal of redemption gates would mitigate the 'first-mover' advantage issue and replacing gates with a transparent known liquidity fee construct would provide investors with greater transparency and certainty to better inform their liquidity decisions. The amount of any liquidity fee should be carefully calibrated in relation to a money market fund's actual cost of liquidity. The fees should be restorative, not punitive, and designed to deter early redemptions." Finally, on the "Proposed Swing Pricing Requirement, they write, "Invesco strongly opposes the swing pricing proposal primarily because we believe it would not achieve the stated objectives of the proposed reform and is substantially inferior to the use of liquidity fees: Swing pricing would not deter money market fund investor runs; Swing pricing would significantly reduce the utility of the affected money market funds for the majority of their investors; Swing pricing negatively impacts all investors in the funds, whether they redeem or not, by forcing increased unrealized losses due to the lower NAV; Swing pricing would trigger a wide variety of unintended and undesirable consequences; and, Swing pricing would pose significant operational challenges."
