JPMAM's Gatch on MMF Reforms
Yesterday, the Investment Company Institute hosted a webinar entitled, "After the Pandemic: The Future of the Global Fund Industry." Led by the ICI's Paul Schott Stevens, it featured George Gatch of J.P. Morgan Asset Management, Lisa Jones of Amundi Pioneer Asset Management and Brad Vogt of the Capital Group. The only mention of money funds was at the end, when Gatch fielded a question on potential money market reforms in the aftermath of March 2020. He commented, "I think this is going to be an important question, and one that regulators are going to look very closely at, European regulators as well as the U.S. I think that the question is around the [2a-7] reforms for money market funds from the last crisis, and what adjustments, if any, should be made to that. There is no doubt that the weekly liquidity requirements and the reporting of those requirements became a new hair trigger for institutional investors. Funds had, in most cases, over 30 percent weekly liquidity to deal with, but because investors saw that as the potential that a fund would gate and/or add fees, that became the new reason for institutional investors to leave funds. I think there is an entire question around whether there are better ways to ensure that funds continue to have large positions in liquidity and government securities to handle redemption activity, but not lead to a point where you're encouraging investors to be first movers. I think that's where the debate is going to be." Gatch added, "Now there are some asset managers who have decided to exit the prime money fund business. I think these products provided an extraordinary service to investors; they enhance returns. The previous reforms, 2a-7, have strengthened money funds, but this question about the 30 percent liquidity becoming the trigger is one that we need to look very closely at." In other news, see Bloomberg's bearish article, "The $1 Trillion Commercial-Paper Market Is Fading Into Obscurity."
