J.P. Morgan Global Liquidity released its "2017 Investment PeerView survey and report, which is subtitled, "Industry insights: See how your cash strategy compares. The introduction, from Global Head of Sales Paula Stibbe, says, "I am pleased to introduce the 2017 J.P. Morgan Global Liquidity Investment PeerView survey results report.... As investors continue to navigate shifting interest rate environments globally and face new regulatory pressures -- recently implemented Securities and Exchange Commission (SEC) money market fund reform in the U.S. and approaching reform in Europe -- the PeerView findings will help them better understand their cash investment decisions through a comparison with those of their peers."
The study's "Executive summary" tells us, "In the early months of 2017, J.P. Morgan surveyed respondents at an important juncture, as investors faced unfolding or approaching changes in the regulatory, interest rate, economic and political arenas. As our survey reports, on all fronts investors are reassessing their short-term fixed income investment portfolios, looking for the strategies and solutions that can best help them navigate the changing environment."
It continues, "In the U.S., new SEC rules governing money market funds (MMFs) took effect in October 2016, following a two-year transition period. After they considered new regulations on floating NAV (FNAV), liquidity fees and gates, many cash investors decided to transition assets from prime to government funds. But as they become more comfortable with the new parameters of prime funds, and ponder their excess yield, many investors are rethinking the relative attractiveness of prime vs. government MMFs. In Europe, where money market fund reform is slated to take effect in late 2018 or early 2019, investors will evaluate a range of new MMF structures. Finally, Basel III regulations, which redefine global standards for bank capital, liquidity and leverage, will continue to drive non-operating deposits off bank balance sheets."
JPMAM's survey says of its Key findings: "Investment in money market funds [is] still strong. Based on the market outlook for next year, over 60% of respondents will continue with the same allocation to money market funds, while 22% will increase their allocations to stable NAV funds and 20% to floating NAV funds. Money market funds and bank obligations account for the majority of cash balance allocation. Nearly 40% of respondents cited money market funds as their chosen vehicle for money moved off a bank balance sheet -- by far the most popular placement."
Other key findings include: "Regulatory pressures.... In Europe, 44% of respondents said they need more time and/or information before they decide on their preferred money market fund structure.... Among those considering new structures, 43% ranked risk of gating or a liquidity fee as the most important factor in their decision-making process; and, Investment policy changes.... Notably, 48% of respondent policies now permit FNAV funds, up from 32% in 2015. Nearly a third of respondents are looking to add FNAV funds to their list of allowable investments."
They also cite as key: "Shifting rate environment, [and the] search for yield. In a still-low rate environment, investors continue to search for yield and reassess their appetite for risk. Nearly two-thirds of respondents said they would select money market funds for their cash investments if bank deposit rates lag.... [and a] Keener need for cash segmentation.... Many respondents have determined that they need to consider new investment solutions, including floating NAV funds and more customized portfolios."
On the topic of "Moving back into prime funds," JPM says, "Only 37% of U.S.-based respondents are currently invested in a prime money market fund, down from 63% in 2015. A majority transitioned assets to a government money market fund in the wake of new SEC 2a-7 rules. Fifty percent of U.S. investors who transitioned assets from a prime to a government MMF cited comfort level with floating NAV and gates/fees as the primary factor in reconsidering prime. Among respondents who transitioned assets out of prime MMFs, nearly half would consider moving back if prime offered an excess yield of between 15 basis points and 50 basis points."
The study tells us, "Stable NAV money market funds continue to be the most permissible investment, followed by bank obligations, U.S. Treasuries, floating NAV MMFs, commercial paper and U.S. government agency securities. Insurance companies tend to allow more investments to be permissible compared with other industries. The vast majority of respondents prefer rated money market funds over non-rated funds, which are permitted by only 6% of survey participants' investment policies."
It adds, "Since our last survey, globally we saw a more than 50% increase in the percentage of investment policies that permit FNAV MMFs, up from 32% to 48%. Historically, Europe had the largest percentage of firms permitting FNAV MMFs, but in the wake of the implementation of U.S. MMF reform in October 2016 -- new SEC rules require institutional prime and municipal money market funds to float their market-based NAV -- 52% of Americas respondents permit FNAV MMFs, up 80% from the 2015 survey."
Reporting on the survey, The Wall Street Journal's CFO Journal posted the blog, "Treasurers Weigh Investment Changes Amid European Money-Market Fund Reform." They explain, "The majority of European companies will consider changing their investment policies in response to new money-market fund rules and other regulatory changes, according to a survey by J.P. Morgan Chase & Co. Nearly 60%, or 75 of the 129 European companies J.P. Morgan surveyed, said the new rules could result in changes to where they keep their cash.... Globally, J.P. Morgan surveyed a total of 378 companies, with assets under management totaling $1.2 trillion."
The article continues, "The Council of the European Union, one of the EU's main decision-making bodies, in May approved reforms that impose stricter liquidity requirements and limit redemptions on money-market funds. The new rules are expected to go into effect by the end of 2018 or in early 2019. "Corporate treasurers are reevaluating their cash-decision making," said Jim Fuell, head of J.P. Morgan's global liquidity sales unit.... Around E1.2 trillion ($1.35 trillion) is currently invested in European money-market funds, according to the Institutional Money Market Funds Association."
The piece also comments, "Corporate treasurers and investment managers at 44% of the companies surveyed said they needed more time before making changes to their investments. Meanwhile, 43% of companies said mandatory liquidity fees and redemption hurdles would be the most important factor in their decision making process. A new category of funds, so called low-volatility net asset value funds, will likely attract significant amounts of corporate cash, Mr. Fuell said, as they are the most akin to the constant net asset value funds that are available now."
Finally, CFO Journal adds, "The changes in Europe are expected to be less dramatic than the reforms that came into effect in the U.S. in October 2016 because the liquidity fees and redemption hurdles apply to all money-market funds in Europe. The U.S. rules triggered a rush of cash from prime funds -- money-market funds that invest primarily in corporate debt securities -- into U.S. treasury and government funds, which are not subject to liquidity fees and redemption hurdles."
