Neuberger Berman Fixed Income CIO Brad Tank said money funds "should take further steps" to increase liquidity according to news reports from MutualFundWire.com and Investment News. The former publication wrote "Neuberger PM Thinks More Money Fund Ties Will Prevent Another Tanking" while the latter wrote "Reforms to money funds don't go far enough, Neuberger executive says" late yesterday.
The Investment News piece says, "Although the new rules 'are a step in the right direction, they fail to address the unrealistic expectations that one should have unlimited liquidity and some kind of return,' said Bradley C. Tank, managing director, chief investment officer of fixed income at Neuberger Berman. He made his comments during a panel discussion at a media event for the firm in New York."
IN quotes Tank, "We should take further steps," to address "investors' unrealistic expectations" but "requiring the funds to be insured, as some fund companies have suggested, isn't the answer." Funds could lower yields and raise expenses by requiring insurance, or firms could restructure money funds to better offer liquidity. Tank "prefers the latter." The article adds, "In other comments, Neuberger Berman executives expressed concerns about the amount of money going into fixed-income assets."
Moody's published "U.S. Financial Regulatory Reform Would Make Repo with Broker/Dealers Less Attractive for Money Market Funds," which says, "On 20 May, the U.S. Senate passed the 'Restoring American Financial Stability Act of 2010,' which would give the FDIC expanded liquidation powers to delay or 'stay' collateral in connection with repurchase (or repo) agreements when liquidating 'covered financial companies'."
Authors Marty Duffy and Rory Callagy say, "The proposed changes will reduce the attractiveness of repo for money-market funds, and will likely increase allocations to government securities, which is a credit positive for money-market funds. The potential to stay collateral liquidation will also renew money-market funds' focus on counterparty risk and reinforce the funds' preference for counterparties with higher ratings. Currently, cash lenders in repurchase agreements with broker/dealers or other non-banks benefit from an exemption from the 'automatic stay' that takes effect under Section 362 of the Bankruptcy Code upon a bankruptcy filing."
Moody's continues, "This change is directly contrary to the appeal of repurchase agreements to money-market funds, which is centered on the expectation of immediate access to collateral, consistent with the fund's liquidity objectives. The receiver's ability to effect a delay in the lending fund's access to its collateral makes repo less attractive, and will inevitably force money-market funds to find other sources of overnight liquidity."
Finally, they say, "We believe that if this change is included in final financial reform legislation, money-market funds will turn to the government-securities market directly as an alternative to repo. Our expectation is further supported by the reduced pool of highly rated counterparties, combined with tighter counterparty exposure limits and the reduction in the supply of repo available to money funds. Nonetheless, we also believe that repo will remain a popular form of overnight liquidity, but expect that the stay provision of the new bill, if passed in its current form, will cause funds to gradually shift repo exposures to more highly rated counterparties."
