The Investment Company Institute reports increases institutional inflows into MMFs in latest week.
In about two weeks Securities and Exchange Commission will vote on measures to further control the money market fund industry. But that isn’t stopping institutional investors from putting money into the funds, according to the fund tracker Investment Company Institute.
According to the ICI, assets of institutional money market funds increased by $13.17bn to $1.68tn in the week ended Aug. 15. This is the third largest inflow of institutional money since the end of March. Among institutional funds, taxable non-government money market fund assets increased by $6.80bn to $915.71bn, taxable government money market fund assets decreased by $6.61bn to $687.40 bn, and tax-exempt fund assets decreased by $240mn to $83.91 bn, according to the ICI.
On August 29, the SEC is set to vote on tightening rules governing MMFs. These rules include requiring the funds to allow their net-asset values (NAV) to float rather than remain fixed at $1 per share, set aside capital to protect against losses and also hold back a portion of shareholders’ cash for 30 days when they seek to withdraw all of their money. All of these proposals will make MMFs less appealing to treasurers and other users.
The Fed has also weighed in in support of the SEC. Last week the Boston Fed published a report claiming more MMFs fail than previously thought due to sponsors stepping in to support the funds. Many MMF industry players think regulators are trying to kill the industry altogether by forcing to short-term investors to banks. But Institutional Cash Distributors, or ICD, has countered that on the face it, there have been more bank failures in the past 4 years alone (424) than there have been in the 41 years that MMF that been doing business.
But the latest inflows may point to some confidence on investors’ part that the funds will remain untouched for now. One reason might be because three of the SEC’s five commissioners have publicly expressed skepticism about the need to adopt additional money market reforms beyond the ones enacted in 2010. Those rules included requiring money market funds to have a minimum percentage of their assets in highly liquid securities so that those assets could be readily converted to cash to pay redeeming shareholders, requiring shorter average maturity limits for MMFs in order to help limit the exposure of funds to certain risks such as sudden interest rate movements and requiring funds to hold sufficiently liquid securities to meet foreseeable redemptions, among others.