ICD: Invesco's Brignac Says No Gates
Online money market trading "portal" ICD hosted a webinar on "Money Market Funds in Times of Uncertainty" featuring Invesco CIO & Head of Global Liquidity Laurie Brignac. She comments, "Only about two weeks ago ... you really started to see things seize up.... The magnitude of change day to day in terms of equity and Treasury markets were just mind boggling and the balance sheets of the dealers started to fill up, so we knew the markets were going to start seizing.... As a money fund manager, you're holding extremely high-quality assets and you can't get a bid on 1-month commercial paper? And so that's when cooler heads have to prevail. The Fed had to come in with massive intervention including facilities to help the funding markets.... The good news is [with] some of these facilities that they're rolling out, we're not talking about buying distressed assets like we were in 2008." When asked about regulations, Brignac adds, "When Lehman happened, as an industry, the Prime money market funds were much larger. We had a lot more commercial paper. Now we're smaller. We own more CDs. We own more floating rate securities. This is important in terms of how quickly the market is reacting to the liquidity facilities now versus 2008." She also comments, "I think it's important to note that the two money market funds that sold securities back to their sponsors, I think that was 100 percent a timing issue because the Money Market Liquidity Facility had not been announced and/or wasn't up and running.... We shouldn't really see any more announcements like that.... I do want to just highlight again, what we're seeing in the markets is 100 percent a liquidity issue. There are no credit concerns here.... It's not like money market funds weren't doing what they're supposed to do, or that there were any rogue advisors." Brignac explains, "I think that the money fund reforms have done a lot of good. I think transparency was probably the best thing, because I'm sure those of you that were around in '08 remember there was a lot of scratching of heads over what exposures people had, and really what was the status of their investments. Now, it's just so incredibly transparent, you know what you own.... I think the discussion around the fees and gates ... just because you go below 30 percent weekly liquidity does not mean you're going to have an automatic gate. As a matter of fact, with markets functioning with high quality assets, and if you can provide liquidity, why wouldn't you continue to provide liquidity? I think where gates are important is when there's a wholesale run on a product or if you have a credit issue. I think that's when those would make sense. I don't know any adviser out there that, even getting below 30 percent ... would really actively put on a gate unless there was some other issue involved."
