Federated Video: Time for Prime?
Federated Investors posted a video interview with Money Market CIO Deborah Cunningham which asks, "Is it time to start moving money back to prime funds?" She tells us, "We have been saying that it is definitely the time for prime, [but] I think that there are probably 3 main competitive disadvantages in the marketplace right now that keep that from happening. First of all, when you look at the yields of prime products versus government funds, they're very attractive, 30 to 35 basis points, or two to three times what the historical norms would have been in those spreads. Against deposit products, they look very, very attractive. Yet, I think the three main impediments are the following: number one, the earlier cutoff times. Prime institutional products, generally speaking, have a cutoff time around 3 pm, versus what used to be 5pm products ... and still is for the gov't money market funds. Secondly, I think it's the small size of the prime funds. Their assets were reduced drastically during money market reform, and they're just now starting to grow back to become a factor in the market again. Thirdly, I think, and it's probably a larger factor, are the operational issues associated with systems. I think that many participants have not yet tested their systems to be able to undertake the floating net asset value and the product that could have a gate or a fee associated with it, and this is also a natural impediment. I don't think it causes the market to stymie completely, yet it definitely causes it to be slower from a reaction standpoint, despite what are very attractive features from a spread standpoint. But the answer is, it's definitely time for prime, it was yesterday, it is today, and it will be tomorrow."
