Wells Fargo Funds released an update on last week's "Brexit" vote in the U.K. It says, "From the Wells Fargo Money Market Funds portfolio management team. The idea that the U.K. would hold a referendum on European Union membership first appeared on our radar in December 2014, in advance of the elections that were to occur the following May. Indeed, it had been part of David Cameron's campaign platform, and when his Conservative Party received an outright majority, the likelihood that such a referendum would be held became a virtual certainty, with only the timing in question. In February 2016, the date of the referendum was announced. Consequently, the impact of the referendum's outcome has been a factor in our determination of minimal credit risk when we have analyzed U.K. credits for some time now. We do not expect the Brexit vote to change the approved status of U.K. banks. In the short term, there may be some pressure on U.K. banks, but this was anticipated and has been prepared for, with banks having increased liquidity and the Bank of England standing by to supply ample liquidity if needed. Near-term economic weakness may be likely, with cautious corporate behavior affecting investment and employment. This process, however, will likely take a considerable amount of time to play through. The eventual implementation of exit negotiations is not likely to occur until at least October, when a new prime minister is selected, followed by a minimum of a two-year negotiation and separation period. The outcome of this vote, which seems to have surprised many market participants, has led to market volatility in what are considered to be traditional risk assets -- such as equities and foreign exchange -- accompanied by a flight to quality to U.S. Treasury securities. The money markets, however, are relatively immune to this volatility, with both credit spreads and liquidity little changed. The Wells Fargo Money Market Funds have a very low exposure to the British financial sector -- about 6%, including roughly 2% in overnight maturities -- with a short average maturity of 14 days. We will continue to monitor the effects of this referendum and the impact on money market instruments, making changes as appropriate." Also, Wells Fargo Securities' Garret Sloan commented on the last week's Money Fund Symposium, "We had the opportunity to attend the Crane Money Fund Symposium last week in Philadelphia. Money market fund reform and the state of money market fund assets were discussed in detail throughout the conference. Although many fund complexes and clients have already converted prime to government fund assets, there are expected to be a number of clients who are waiting until October when MMF reform is implemented, to make any sort of move out of prime funds. Some fund complexes noted how they are keeping WAMs and WALs shorter and purchasing securities that mature right before MMF reform implementation, in anticipation of clients shifting out of prime funds." He adds, "The final day of the Crane conference concluded with a discussion on Brexit.... It was noted during the discussion at the conference that the vote and decision for the UK to leave the EU comes on the heels of quarter end, which can also naturally be a volatile period for cash managers."
