Although upcoming reform will force institutional prime money market funds to move to a variable net asset value and give boards of those funds the discretion to impose fees and gates under certain circumstances, most market participants do not anticipate significant market disruption.
This was the key takeaway from an Institutional Cash Distributors-hosted a roadshow event in San Francisco on April 14, 2016. A panel of experts, which was moderated by Tom Knight, an EVP & treasurer at ICD and included Tony Carfang of Treasury Strategies, Debbie Cummingham of Federated and corporate practitioners Dette Lazo of Levi Strauss and Sunita Parasuraman of Facebook, shared its thoughts on VNAV rules, simplified accounting methods and other important reform topics.
Fund managers have been working to comply with the new VNAV rules including the expansion from 2 decimal to 4 decimal calculations and close monitoring of liquidity asset rules. Corporate investment managers are also working to prepare for the upcoming changes, including switching from prime to government only funds that will allow them to sidestep the VNAV requirements. Many investment managers have already reviewed and updated their investment policies to accommodate these anticipated changes.
While most experts see a smooth transition when the rules are implement, there remain some concerns. Chief among them seems to be that of supply. Most believe that the availability of government only MMFs will dry up as the October implementation date gets closer. This issue will need to be addressed over time, but for now, it is as manageable as long as companies maintain a robust investment strategy – mainly one that is flexible and with perhaps a broader mandate on the risk side.
ICD also showcased the latest trading and risk management advances within the ICD Portal. These new advances will allow those investment managers that remain in prime MMFs to have robust reporting to allow fund monitoring of user-defined liquidity rules (which can be more conservative than those defined as part of the new regulations) along with critical reports to be used for the simplified accounting that will be required going forward.