Money market fund companies are continuing to transition their product offerings to meet the needs of clients and more importantly, comply with new Securities and Exchange Commission (SEC) rules set to begin October of 2016. The latest notable firms to change are Blackrock and Legg Mason’s Western Asset Management Company.
Just a couple of weeks ago Federated Investors announced changes to its product mix and also stated that the new SEC rules won’t be as bad as originally thought. All the firms are adjusting their offerings to conform to rules that require all but government funds to have floating net asset value (VNAV) along with liquidity gates and redemption fees. The latter two rules are meant to prevent “runs” on the MMFs.
Blackrock said that it is trying to satisfy a wide variety of client challenges with a “spectrum of choices” in light of the new rules. Because the company sees the MMF reforms and “other market factors” creating “substantial shift of assets” to government funds that will stay with the $1.00 or constant NAV, the company is widening its CNAV offerings.
“Given the limited supply of short-dated government securities and the substantial contraction of the repurchase agreement markets, we are concerned about the potential for shortages in CNAV government funds,” the company said in its letter to clients announcing the changes. “To seek to maximize the liquidity available to our clients in CNAV products, BlackRock plans to offer our clients four institutional CNAV Government and Treasury funds, each of which is an approved counterparty for the Federal Reserve’s Reverse Repurchase Agreement Program.”
Blackrock’s offerings also will include ultra-short, seven-day funds that will neutralize the impact of a VNAV; the company will also increase its separate account services. “Conversations with various clients in the marketplace indicate that for clients of a certain size, separate accounts are an increasingly appealing alternative given the challenges presented by money fund reform, bank regulation and continued low interest rates,” the company said. In citing banking regs, Blackrock pointed to Basel III’s impact on banks’ unwillingness to accept deposits.
Like other firms, WAMCO will offer the constant NAV regime offered in its US Treasury and government money market funds and abide by the VNAV rules announced by the SEC. The company will also offer ultra-short funds that will not have to comply with the new SEC rules. One is the Western Asset Ultra Short Obligations Fund (LWAUX), which “seeks a high level of income, consistent with liquidity and the preservation of capital” while the other is Western Asset Short Term Yield Fund (LGSTX), which “seeks current income.”
Like Blackrock and other firm funds, WAMCO will fill these funds with very short-term instruments to give companies a daily cash-like feel. These funds will also not be subject to liquidity fees and redemption gates.