Fitch: Prime Money Fund Assets Stable Following Reforms

NEW YORK--()--Link to Fitch Ratings' Report: U.S. Money Market Funds Quarterly 2Q14

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=759547

Assets of institutional prime money funds have remained stable following the Securities and Exchange Commission's (SEC) adoption of reforms for the industry on July 23, according to Fitch Ratings' 2Q'14 U.S. money market funds quarterly report.

Between July 16, when the SEC announced it would hold a vote on money fund reform, and August 6, shareholders withdrew $6.8 billion from institutional prime money funds, or 0.7% of the funds' assets according to iMoneyNet data. Institutional prime (and municipal) funds are most impacted by the reforms, and Fitch expects some investors to gradually redeem a portion of their assets out of these funds over the two-year implementation period.

However, investors so far have not made significant changes to money fund investments in reaction to the SEC's announcement of reforms. Since July 16, of 94 institutional prime money funds tracked by iMoneyNet, 64% had small fluctuations in assets of -5% to +5%, and an additional 18% of the funds showed inflows of greater than 5%. Six percent of the funds had outflows of 5% to 10%, and 12% of the funds had outflows greater than 10% of assets over the roughly three-week period.

It appears that money fund investors have thus far taken a wait-and-see approach to the SEC's reform efforts, and many are still reviewing the final rules. Institutional investors will need to re-examine and update their investment policies to be able to use the new money fund structures or access alternative liquidity management solutions. Once this process is underway, prime money funds may experience more significant outflows, and will need to be prepared to handle them.

Separately, Prime and government money funds allocated a record $275 billion to the Fed's reverse repo facility (RRP) at the end of 2Q'14 to offset the seasonal reduction in banks' balance sheet capacity. Between May-end and June-end, money funds increased their allocations to the RRP facility by $148 billion, according to Crane Data. At the same time, the funds reduced investments in government and treasury repos with banks by $72 billion. Banks have historically sought to reduce the size of their balance sheets and leverage on quarter-end reporting dates, but this seems to have been exacerbated as a result of the new bank regulatory requirements. The reduction in exposures could also be caused by bank-specific market developments.

The full report, 'U.S. Money Market Funds Quarterly 2Q14', is available at 'www.fitchratings.com' or by clicking on the link above.

Opt-in to receive Fitch's forthcoming research on money market funds:

http://pages.fitchemail.fitchratings.com/FAMMMFBlankOptin/

Additional information is available at 'www.fitchratings.com'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Greg Fayvilevich, +1 212-908-9151
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Greg Fayvilevich, +1 212-908-9151
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com