An update from the European publication Euromoney, entitled, "Treasurers adapt ahead of European money market reforms," quotes from two experts in the European money fund space, Invesco's Natalie Cross and SSGA's Will Goldthwait. They write, "With six months to go before money market reforms are imposed on all funds in Europe, treasurers hoping to earn a return on their cash are scoping out the best options available. By January 21, existing and new European money market funds (MMF) will have to fall in line with reforms that will see constant net asset value (CNAV) restricted to government portfolios only." We review this latest update on pending European money fund reforms, and also cover the latest money market fund asset statistics below. (Note: The new European General Data Protection Regulations go into effect today, so Crane Data has updated its privacy policies. See below or ask us for details.)
The Euromoney piece explains, "Investors seeking higher returns from funds investing in short-term liabilities of non-government issuers will have to cope with variable net asset value (VNAV) funds instead, but will also have access to new low volatility net asset value (LVNAV) structures. Regulators hope these distinctions will bring greater stability to the market."
It tells us, "With the reality of these regulations now looming, Natalie Cross, senior client portfolio manager at Invesco, says the reaction of investors so far has been positive." She comments, "Clients have responded well to the incoming changes.... The product types are acceptable to clients and their needs."
They also quote State Street Global Advisors' (SSGA's) Will Goldthwait, "Clients are understanding the rule changes and how they will be impacted by them.... They understand that the rules are, overall, positive and will make money market funds safer and more liquid.... Overall, we have learned that clients like MMFs and want to continue to use them.... The MMF rule changes are very different from those rule changes that affected US money market funds.... Thus we think clients will react differently and the change in strategies will not be as severe as it was in the US."
Euromoney continues, "To be in time for the changes, a large number of treasurers are looking at which options to choose.... Ensuring their systems are up to the job is also a necessary task over the coming months.... `For treasurers to get a full understanding of what the changes will mean, Cross says it is up to the fund providers to proactively reassure them."
The article adds, "Over time, as treasurers become more comfortable with what the different structures will involve, they are likely to begin exploring the options open to them. For those looking for a CNAV, the LVNAV is likely to be the first choice.... The short-term VNAV is an option for those looking for additional yield and who are wary of the gates and fees applied to LVNAVs. There is also the standard VNAV, which is likely to be used to earn additional yield on cash not needed for immediate operations."
Finally, they tell us, "The reform does require some additional legwork.... [But] the market is confident there will be a range of funds available for businesses." Cross says, "We feel that the new regulations will continue to offer investors a suitable range of MMFs, which continue to prioritize capital preservation and liquidity, without significant impact to the operational mechanisms of the funds that they are already familiar with."
In other news, ICI released its latest "Money Market Fund Assets" report yesterday, which showed money fund assets relatively flat on the week after rising for 3 weeks in a row. Year-to-date, MMF assets have decreased by $13 billion, or -0.4%, but they've increased by $177 billion, or 6.7%, over 52 weeks.
ICI writes, "Total money market fund assets increased by $814 million to $2.83 trillion for the week ended Wednesday, May 23, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $1.56 billion and prime funds increased by $484 million. Tax-exempt money market funds increased by $1.89 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.223 trillion (78.7% of all money funds), while Total Prime MMFs stand at $462.5 billion (16.4%). Tax Exempt MMFs total $140.0 billion, or 5.0%.
They explain, "Assets of retail money market funds decreased by $671 million to $1.03 trillion. Among retail funds, government money market fund assets decreased by $1.68 billion to $630.93 billion, prime money market fund assets decreased by $642 million to $262.58 billion, and tax-exempt fund assets increased by $1.65 billion to $131.94 billion." Retail assets account for over a third of total assets, or 36.3%, and Government Retail assets make up 61.5% of all Retail MMFs.
ICI's release adds, "Assets of institutional money market funds increased by $1.49 billion to $1.80 trillion. Among institutional funds, government money market fund assets increased by $118 million to $1.59 trillion, prime money market fund assets increased by $1.13 billion to $199.90 billion, and tax-exempt fund assets increased by $241 million to $8.10 billion." Institutional assets account for 63.7% of all MMF assets, with Government Inst assets making up 88.4% of all Institutional MMFs.
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