The Treasury Investment Managers’ Peer Group (TIMPG) met recently to work through money market reform issues that once seemed years away, but are now approaching quickly. When the SEC published money market reform changes, they allowed a two-year grace period for implementation for planning and adjustments. The rules go into effect in October 2016.
RBC Global Asset Management hosted and sponsored the meeting with Brandon Swenson from RBC noting that “money market reform had two years to implement. Everyone thought they would cross that bridge when they came to it. It is now time to cross that bridge.”
No longer a simple choice
Mr. Swenson pointed out that using prime funds used to be a simple choice for treasury – the proverbial “no-brainer.” But of course, with the variable net asset value requirement, “they are no longer simple,” says Mr. Swenson. However, his biggest concerns aren’t the regulations regarding floating NAV and breaking the buck. “Published NAVs have been very stable since the 2010 reforms and are well structured to withstand volatility,” he says. The bigger concerns in the market are the fees and gates and the liquidity drain that new regulations will bring. Therefore, simplicity has been lost. Members realized that these regulations, regardless of investment in prime money funds, will significantly impact the short duration fixed income market.
Higher rates loom
Another challenge members are preparing for is higher rates. Rates have been so low for so long, having seeing them increasing was another event that seemed a long way off. But again, it’s closer than people think, notes Mr. Swenson. RBC Global Asset Management believes that rates will increase this year. However, as one member of the RBC team noted, “yields will go up, but let’s not expect fireworks.”
Brian Svendahl of RBC then made the case for continuing to invest in short-duration fixed-income despite rising rates. “Short duration portfolios may experience modest negative returns, but timing is difficult and can be painful being out of the market.”
All in all, treasurers have a few challenges to get through this year.
The Treasury Investment Managers’ Peer Group (TIMPG) is The NeuGroup Network’s group for practitioners with principal responsibility for managing the investment of excess cash at corporates with the largest portfolios. Members meet to discuss topics on their agenda, share experiences and discuss solutions to common challenges.