Yesterday afternoon, a free Webinar, entitled "Money Market Funds Reform -- Issues and Implications," was hosted by Euromoney Institutional Investor and sponsored by BNY Mellon Asset Servicing. The session's panel of experts, hosted by Joe Keenan, MD & Head of Relationship Management at BNY Mellon Asset Servicing, included: Matt Bromberg, MD & Senior Counsel of BNY Mellon, Jane Heinrichs, Senior Associate Counsel of the Investment Company Institute, Joan Swirsky, Counsel for Stradley Ronon, and Ed Von Sauers, Senior Credit Strategist for Dreyfus. The one-hour Webinar provided a broad overview and history of money market funds and regulations, and included a detailed discussion of the current issues and regulatory changes facing money funds.
Host Keenan said, "I cannot think of an area today that is more pertinent for us to focus on than the money market fund industry for the small retail investors and the institutional behemoths alike. Given market turmoil, the negative impact of credit concerns, and absence of liquidity has had on the short-term money markets, coupled with the increased pressure of a reduced interest rate environment on fees and the spectre of impending regulation, a tremendous amount of uncertainty still surrounds the money fund industry. I'm excited that our panel of experts will share their insights on what's ahead for these important products."
ICI's Heinrichs discussed the birth and growth of money funds and explained, "Since 1983, in response to certain market conditions or events, the SEC has amended Rule 2a-7 four times, the most recent happening just a few days ago. The comprehensive protection of the Investment Company Act, combined with the exacting standards of Rule 2a-7, have really contributed to the success of money market funds.... Since 1983, money market funds have actually `grown from $180 billion to what they are today, which is $3.2 trillion. This is just phenomenal growth. What's more amazing is that during all this time, 30+ years, only twice has a money market fund failed to repay the full amount of its shareholders' investments, and then the difference is only pennies on the dollar. So I think by anyone's definition, this demontrates that Rule 2a-7 is truly a regulatory success story."
Von Sauers reviewed the history of the financial crisis, citing issues with asset-backed commercial paper and SIVs. He added, "Irresponsible media reporting further exacerbated the problem by identifying failing enhanced cash funds as money market funds.... During the crisis, Dreyfus ... communicated effectively and often with our shareholders and regulators to keep them apprised of the condition of our funds. Dreyfus also utilized the various programs instituted by the government to provide liquidity to our clients when needed."
Swirsky said, "It's been a very difficult environment for money market funds.... Most of that [credit concerns] has settled down, though of course fund safety and liquidity is always an issue. But the imminent problem right now is the low interest rate environment. Money market funds are finding it hard to eke out enough income to cover their expenses.... There's quite a bit of competition out there.... Another challenge we have is regulatory uncertainty.... We're expecting the other shoe to drop.... In addition, we're awaiting the President's Working Group on Financial Markets."
She added, "But despite all these challenges, I think we really need to keep in mind a couple of things about money market funds. First, they have been a bright spot for a lot of fund families. When assets were fleeing from other asset categories they were flooding into money market funds 18 months ago.... Money funds have been a way to keep assets within the fund family.... In addition, money market funds have kept their value in all but one case. I think we have to keep that in mind."
The Webinar also featured several "Resource Links," including: Total Net Assets of Money Market Funds, Selected Money Market Instruments, Taxable Money Market Funds' Holdings of Commercial Paper, and The Guide to Rules 2a-7 by Joan Ohlbaum Swirsky. You can still register and listen to the replay here.
