MMF Managers Look at Private Funds
The Financial Times writes, "Private Placement Option for US Money Market Funds." The article says, "Several large managers of money market funds in the US are believed to be considering launching private funds that would sidestep a regulatory clampdown designed to reduce systemic risk. The Securities and Exchange Commission, the regulator, ruled in July that institutional non-government money market funds must abandon their cherished stable $1-a-share structure by October 2016 and instead adopt the variable net asset value pricing model used by the rest of the fund industry.... The crackdown could backfire if the industry successfully tempts investors, typically corporate treasurers, with private placement-style funds not marketed to investors in general. "There are large US fund companies with large money market funds who are looking at private funds as an option they can offer to their investors," said the head of liquidity funds at one large house, who declined to be named. "I would be amazed if they are not all looking at it because it is something they are all talking about," said another industry figure. Sean Tuffy, head of regulatory strategy at Brown Brothers Harriman, a fund-servicing company, added: "I do think groups are going to find innovative and alternative ways to recreate the constant NAV institutional prime money market fund.... The variable NAV was not something the market wanted, so it makes sense that groups would look to create structures that replicate the CNAV fund." The move may unnerve US regulators. The SEC said in the summer that if its reforms led investors to seek alternative vehicles such as CNAV private funds that are not registered with the commission, "this shift could increase risk by reducing transparency of the potential purchasers of short-term debt instruments".... However, there appears to be disagreement within the industry as to whether private funds aimed at US investors could be domiciled in the US, or instead would have to be based in an offshore location such as the Cayman Islands. The latter could deter some institutions." The article adds, "There is speculation that European money market fund managers may also look at launching private funds if the EU imposes draconian regulation on its CNAV sector."
