UBS Global Asset Management filed with the SEC to launch three new money funds, we learned this week from Strategic Insight's SimFund Filing service. SI writes in its weekly synopsis, "UBS registers three money market funds which will each invest through the same underlying master fund and that intend to qualify as "retail money market funds" on or before October 14, 2016: the UBS Prime Investor, UBS Prime Preferred and UBS Prime Reserves funds (with minimum investments of $10,000, $50,000,000, and $1,000,000, respectively)." New Prime money fund launches aren't exactly typical in the current environment, where we have seen a series of liquidations, mergers, and nearly $240 billion worth of Prime funds declare their intent to convert to Government funds. Among the few firms recently announcing plans to launch Prime Retail funds, Western Asset Management recently filed to launch Western Prime Obligations MMF. (See our Oct. 14 Link of the Day, "Western Files for Prime Retail."
UBS filed Registration Statements ("Form N-1A," or 485APOS) for three new Prime Retail funds -- UBS Prime Investor, UBS Prime Preferred, and UBS Prime Reserves -- on October 16. According to the SEC filing, the investment objective of the Prime Investor Fund is, "Maximum current income consistent with liquidity and the preservation of capital." The principal strategy is, "The fund is a money market fund and seeks to maintain a stable price of $1.00 per share. The fund seeks to achieve its objective by investing in a diversified portfolio of high quality money market instruments of governmental and private issuers. These may include: short-term obligations of the US government and its agencies and instrumentalities; repurchase agreements; obligations of issuers in the financial services group of industries; and commercial paper, other corporate obligations and asset-backed securities.... The fund invests in securities through an underlying master fund. The fund and its corresponding master fund have the same objective. Unless otherwise indicated, references to the fund include the master fund."
It continues, "On or before October 14, 2016, the fund intends to be a "retail money market fund," as such term is defined in or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (the "Investment Company Act"). "Retail money market funds" are money market funds that have policies and procedures reasonably designed to limit all beneficial owners of the fund to natural persons. As a "retail money market fund," the fund will be permitted to continue to value its securities using the amortized cost method as permitted by Rule 2a-7 under the Investment Company Act.... The minimum investment level for initial purchases generally is $10,000."
The filings for the other two new UBS funds, Prime Preferred and Prime Reserves are similar except for the investment minimums. The minimum is $50 million for Prime Preferred and $1 million for Prime Reserves. In June, UBS announced its roster of Government funds under the new SEC rules. (See our June 12 News, "UBS Announces Govt MF Plans, Private MMFs.") At the time, UBS said it plans to have a full roster of money funds once the new rules take effect, including CNAV Prime, Muni and Government funds; Floating NAV Institutional Funds, Private Fund(s), Separately Managed Accounts, and Ultrashort Bond Fund(s).
UBS also filed to make changes to its Bank Sweep Programs in the prospectus for its Select Prime Capital, Select Treasury Capital, and Select Tax-Free Capital money market funds. This June filing says, "Effective August 20, 2015, if you are an eligible participant, in the event that the bank offering the interest-bearing deposit accounts into which your free cash balances are swept elects to stop taking deposits at its discretion or if it is prohibited from doing so by its banking regulators, your free cash balances will be swept to a temporary sweep option. Existing balances will remain in such interest-bearing deposit accounts and in your "secondary sweep option", which is either a fund or deposit accounts at UBS AG.... If your secondary sweep option is UBS RMA U.S. Government Portfolio, your temporary sweep option will not change. You will not receive prior notice before your free cash balances begin sweeping to your temporary sweep option. However, notices will be posted to UBS Financial Services Inc.'s public and private websites no later than the Implementation Date, and your securities account statements will reflect the change."
In other news, Fidelity completed the merger of its $1.9 billion U.S. Government MMF into its Government Money Market Fund Friday, and is preparing to convert its massive Cash Reserves into a Govt fund and convert the $11.6 billion Fidelity Money Market Trust: Retirement Money Market portfolio into FMMT: Retirement Government Money Market II Portfolio. The latter fund's conversion is slated to be completed on or about Nov. 30, 2015, according to Fidelity's SEC filing. It says, "At a special shareholder meeting of Retirement Money Market Portfolio, shareholders approved a proposal to modify the fund's fundamental concentration policy so that the fund would be prohibited from investing more than 25% of its total assets in the financial services industry. This change will enable the fund to operate as a government money market fund. The fund will implement other changes necessary to operate as a government money market fund, including (i) adopting a principal investment strategy to normally invest at least 99.5% of its total assets in cash, government securities, and/or repurchase agreements that are collateralized fully and (ii) changing its name to "Retirement Government Money Market II Portfolio."
Fidelity is in the process of converting 4 Prime Retail funds to Government funds. (See our Feb. 2 News, "Fidelity Announces Major Changes to MMFs; Staying Stable, Going Govt.") On Nov. 13, the $15.7 billion Fidelity Cash Management Prime Fund merged into Fidelity Government Money Market Fund. (See our Nov. 13 News, "ICI on Prime to Govt Reclassifications; Ignites Recaps Shifts To-Date.") As noted above, the $115 billion Fidelity Cash Reserves Fund will be converted into Fidelity Government Cash Reserves Fund on Dec. 1. Also, Fidelity VIP Money Market Portfolio will convert to VIP Government Money Market Portfolio on Dec. 1.
In other news, the International Capital Markets Association's European Repo Council issued a report last week called, "Perspectives From the Eye of the Storm: The Current State and Future Evolution of the European Repo Market." It says post-crisis regulation is "driving radical change in the European repo market." The accompanying press release explains, "The study records growing concern that the cumulative impact of various prudential and market regulations, along with extraordinary monetary policy, could be affecting the ability of the European repo market to function efficiently and effectively. This could, in turn, have wider repercussions for the broader capital markets and so for the real economy."
It continues, "There are still many unknowns arising from both regulation and monetary policy making predicting the future evolution of the European market difficult. The consensus views are: an expected reduction in the size of the market; an increase in the diversity of participants; a general widening of bid-ask spreads; and the ongoing merging of banks funding and collateral management functions. The overriding concern among market participants is that in future, although they expect the repo market to continue in some form, it may be unable to function as effectively and efficiently as it has in the past in providing liquidity and collateral fluidity to the financial system, with potential negative consequences both for markets and the broader global economy."
Godfried De Vidts, Chair of the ICMA European Repo Council, comments, "The ERC has highlighted the value of the repo market for decades and was swift to recognise the need for regulatory reform in the aftermath of the financial crisis, but this latest study clearly shows that uncoordinated measures by legislators, regulators and prudential authorities are radically altering the short term secured financing market and may even compromise the success of regulatory measures such as EMIR which depend on the fluidity and availability of collateral. We hope that this new study will raise understanding among regulators of the true state of repo in Europe and of its essential role as a component of the Commission's plan for Capital Markets Union with its implications for jobs and growth."
