The first major strategic shift following the Security and Exchange Commission's money market fund reform occurred Friday as the world's largest manager of money funds, Fidelity, announced major changes to its money market fund lineup. The shifts are to comply with pending reforms and to meet investor needs, with the most noteworthy being a move to convert some of its prime funds into government funds, including the largest money market fund in the world, the $114 billion Fidelity Cash Reserves. (See Fidelity Cash Reserves' Prospectus Supplement filing here.) Nancy Prior, President of Fidelity's Fixed Income Division, tells Crane Data, "We're fully committed to the money market fund business.... We're going to have a robust product lineup covering all of the categories, including retail and institutional prime and municipal funds, along with government and Treasury funds, because we want to make sure we can meet all of our customers' investment needs. But we're making these changes now in response to the preferences that we've heard back from several segments of our customer base that would like to continue to have a money market fund with a stable NAV and without gates and fees." (See also Fidelity's "Update on money market fund regulations" and "Fidelity Money Market Mutual Fund Changes.")
Prior announced the 4 key changes as part of "Phase 1" of its changes to its money fund lineup. The first is to amend the investment policies their government and U.S. Treasury money market mutual funds to reflect that these funds already meet the new SEC requirement to invest at least 99.5% of their assets in cash, government securities, and/or repurchase agreements that are fully collateralized.
Second, Fidelity plans to convert several of its prime money market mutual funds to government money market mutual funds. Specifically, the Fidelity Cash Reserves Fund will be converted into the Fidelity Government Cash Reserves Fund; the FMMT Retirement Money Market Portfolio will be converted to the FMMT Retirement Government Money Market Portfolio II, and the VIP Money Market Portfolio will be converted to the VIP Government Money Market Portfolio. All are subject to shareholder approvals via a March proxy vote.
Third, the company is proposing to merge several funds that have similar investment strategies. The Fidelity Treasury Money Market Fund (U.S. Treasury) will be merged into the CMF Treasury Fund to form the Fidelity Treasury Money Market Fund (U.S. Treasury). The CMF Government Fund (Government) will be merged into the Fidelity Government Money Market Fund to form the Fidelity Government Money Market Fund (Government). The AMT Tax-Free Money Fund (Municipal) will be merged into the CMF Tax-Exempt Fund to form the Fidelity Tax-Exempt Money Market Fund (Municipal). No shareholder action is required and these changes will take place in the first quarter.
The following mergers will require shareholder approval, via a proxy vote in March. The Select Money Market Fund (Prime) will be merged with the Fidelity Money Market Fund to form the Fidelity Money Market Fund (Prime); the CMF Prime Fund (Prime) and the U.S. Government Reserves Fund (Government) will be merged into the Fidelity Government Money Market Fund to form the Fidelity Government Money Market Fund (Government). There will be some name changes as a result of these changes, which will be announced at a later date.
"We expect, assuming we get the shareholder approval, to implement these mergers throughout the remainder of 2015," said Prior. "Then, during 2016 we'll focus on the retail/institutional definition and the other structural reforms that are required to be implemented."
A statement sent to Crane Data said, "At Fidelity, we remain committed to offering a variety of investment options and will continue to have a robust product lineup that includes retail and institutional prime and municipal money market mutual funds, along with U.S. Treasury and government money market mutual funds. Many investors have told us that they want access to money market mutual funds with a stable NAV that will not be subject to liquidity fees or redemption gates, which would restrict their use of these funds. In response to those preferences, we are announcing the first set of proposed changes to certain of our money market mutual funds, which are designed to align our product offerings to best meet investors' future needs."
They added, "We will continue to listen to our investors as we approach the final date for money market mutual fund regulatory implementation in October 2016. In the future, we expect to announce which money market mutual funds will be classified as retail funds, and which will be considered institutional funds under the SEC's new rules. As market conditions and investor preferences evolve, we will continue to review our money market mutual fund lineup to ensure that we are meeting investors' needs."
Finally, Fidelity commented, "We are well-prepared for the new rules. With this initial set of proposed changes, we are evolving our product offerings and fund operations to comply with these rules and meet investor needs. We know that money market mutual funds are very important to many investors and these funds will continue to be an integral part of our business."
Also, of note, Fidelity posted the results of a survey designed to gauge the attitudes of institutional clients on the subject. Attendees at Fidelity's Liquidity Council events in Houston and New York revealed that "over 50% of respondents are unsure if they will continue to utilize Prime money market mutual funds when these funds move to a floating NAV, subject to fees and gates." Also, "nearly 100% of those surveyed indicated that having same-day liquidity will be "extremely important" when deciding if they will continue to utilize a Prime (general-purpose) money market fund." Finally, the survey said that "over 60% of respondents recognized the need to update their Investment policy statement in 2015 to accommodate 2a-7 changes."
