WSJ Says Cash More Complicated
The Wall Street Journal reported, "Parking Corporate Cash Is Sure to Get More Complicated" in its CFO Journal yesterday. The piece says, "Sweeping changes in money-market funds are still a year and a half away, but finance executives are already preparing. The new rules could tarnish traditional money funds as a go-to parking place for corporate cash.... Starting next fall, regulators will prohibit companies from investing in some money funds that don't have a floating NAV. The Securities and Exchange Commission intends for the change to prevent a repeat of the mass exodus from certain money funds that happened in the fall of 2008." It continues, "With the new rules on the horizon, many finance chiefs have started discussions with their company's board, treasury staffs and technology teams about how to deal with them. "It's going to be difficult; 18 months is a very short time frame," said Thomas Deas, treasurer of Philadelphia-based chemical maker FMC Corp., and a former chairman of the National Association of Corporate Treasurers. At stake are so-called prime institutional funds. At over $850 billion in combined assets, these funds make up the largest chunk of the about $2.6 trillion money-market industry, according to industry tracker Crane Data LLC. Corporate treasurers tend to regard the funds' fixed NAVs as a near-guarantee that the funds will do no worse than break even, preserving their principal. But a floating NAV "defeats the reason" corporate treasurers have historically flocked to such funds, said Pete Nachtwey, CFO of asset manager Legg Mason Inc. Smaller companies might find it simpler just to move money out of prime money funds." Further, "Fidelity Investments, BlackRock Inc. and Federated Investors Inc. have proposed changes in the prime institutional funds they manage. Their proposals range from closing some funds to shifting fund assets into either ultra-short-term or government securities. Problem is, the roughly $331 billion playground of government institutional money funds [Crane Data note: this figure excludes $300+ more billion in Treasury Inst MMFs] couldn't accommodate any huge capital inflows. The space "is not big enough to hold all that money," said Peter Crane, chief executive of Crane Data. Because big inflows from companies and other investors would threaten to push the already-low yields of government funds into negative territory, fund managers might move to close the funds to new cash, to protect the funds' existing investors.... There also are potential ripple effects for corporate commercial paper, which some companies sell to fund their short-term needs.... If corporations stop parking their cash in prime funds, then companies like FMC might find less demand in the marketplace for their short-term commercial paper. As those funds' pool of assets shrinks, so would demand for commercial-paper offerings. Some market watchers think worries about the rule changes are largely overblown. They include Tony Carfang, a partner at consulting firm Treasury Strategies Inc. For one thing, he believes investors such as hedge funds, insurers and bond funds would step in to buy corporate commercial paper if the prime funds couldn't soak up the supply. "It's really like the Y2K problem," with companies preparing for a worst-case scenario, like a global computer failure, that never actually materializes, he said. He said overly cautious CFOs and treasurers would pull money out of prime funds, retreating from them at first. But they will come back "when they see their friends [who stayed put] getting better returns," he added."
