Money market mutual fund distributors and corporate cash managers are in Chicago this week for AFP 2018, the Association for Financial Professionals' huge annual gathering of corporate treasurers and cash managers. AFP'18, the largest gathering of corporate treasurers in the country, is being held at Chicago's McCormick Place, Nov. 4-6. Below, we excerpt from two of the sessions involving money funds and cash investing: "Keep Calm and Carry On: How Corporations are Preparing for European Money Market Fund Reform," with Timothy Kolenda from AbbVie Inc, Edward Moselle from BioMarin Pharmaceutical, and Sara Flour and Reyer Kooy from DWS; and, "Disruption: Distraction or Opportunity? A Look at Today's Liquidity Environment," featuring Matthew Skurbe of Blackstone and Dave Fishman of Goldman Sachs.
DWS's Kooy explained, "Money fund investors like safety blankets," citing layers of European regulation and oversight, including UCITS III/IV, ESMA, the IMMFA Code and AAA ratings. He asked, "Are we going to see a similar change [in assets like the U.S. reforms]? I believe the answer is 'No.'" He added, "I believe the great safety of money market funds comes from the way they diversify."
Kooy commented on transparency that European reforms "catches up to the common practice of what funds are already doing," mentioning the new disclosure mandates of maturity breakdown, credit breakdown, WAM, WAL, 10 largest holdings, assets and yields. Funds will be converting in November and December 2018 prior to the Jan. 21, 2019 deadline, and "investors will not even notice" the changes.
On the RDM, he told the audience, "With the current negative yield environment in place in Europe, money market funds have used a 'reverse distribution mechanism'.... We've been doing this for more than 5 years.... We're hoping Luxembourg and Ireland will permit the use of this [and] we hope to get [this] confirmed in the not too distant future."
Note: Crane Data originally misreported the significance of a recent letter on this topic. See our Nov. 1 News, "WSJ: Yu'e Bao Shrinking; Europe Still Unclear on RDM Ban; Weekly Holds," which says, "In other money fund news outside the U.S., we learned from ignites Europe that Valdis Dombrovskis, Vice President of the European Commission, wrote a letter to Steven Maijoor, the Chairman of ESMA, entitled, "Subject: Implementation of the Money Market Funds Regulation."
While the letter appeared at first to uphold a ban on reverse distribution mechanisms, European money fund providers tell us that this is nothing new and that they still believe the matter is undecided, and are awaiting confirmation from the EU entities and regulators to continue with RDM. (For more, see our Oct. 19 News, "Oct. MFI Profile: Highlights from European MFS: Irish Funds' Rooney," and our Sept. 5 News, "JPMorgan on European MMF Reforms; Aviva First to Convert to LVNAV."
Kooy concluded, "The details of the regulations differ between jurisdictions [U.S. and Europe], and there are unlikely to be large switches between fund types.... Fees and gates are not new in Europe."
AbbVie's Kolenda said the factors causing the company to shift out of Prime money funds during the U.S. 2016 regulatory changes included cutoff times [shifting forward] and questions over the cash equivalent status, and that the company uses time deposits, interest bearing bank accounts and now is using private prime funds, though they're limited in size.
He added, "The thing that I've liked about money market funds all along [is] the only way you can get a big movement is a fire sale.... Our plan is to monitor our funds.... We have about a dozen funds, and we use an investment portal." Kolenda also mentioned transparency and said they monitor credit default swaps and stock prices.
During the "Capitalizing on Disruption" cash session, Blackstone's Skurbe of told us, "It's one of the more interesting times to be managing money." The company sold its Prime funds, but "There's a trade to be made at a certain level.... To us, [the spread differential between Prime and Govt MMFs] becomes more interesting in the 50-75 basis point range."
Finally, the AFP's Tuesday agenda will feature: "The Commercial Paper Market from the Buyer and Issuer Point of View," with Randy Webb of Applied Materials, Benjamin Campbell of Capital Advisors Group, Matthew Frye of Carnegie Mellon University, and Nicholas Ro of Toyota Financial Services; and "Repositioning for Rising Rates," featuring Ruiz-Zaiko, Jack Yue of KLA-Tencor Corporation, and Jim Palmer of U.S. Bancorp Asset Management. We enjoyed seeing many of you in Chicago!
