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