Fermat Comments on PWG Report
A second serious comment letter has been posted in response to the February announcement, "SEC Requests Comment on Potential Money Market Funds Reform Options Highlighted in President's Working Group Report." (See the list of comment letters here.) The latest response is from Adam Dener of Fermat Capital Management. He writes, "We welcome the opportunity to respond to the December 2020 request for comment on the '`President's Working Group Report on Money Market Funds'. Fermat Capital Management, LLC manages multiple investment strategies, including in trade finance, where the underlying risk is often referred to as 'working capital', and insurance-linked securities, where the underlying risk is often referred to as 'catastrophe risk'. We manage money on behalf of regulated investors including insurance companies, pension plans and banks, as well as sovereign wealth funds, family office and private wealth." Dener's comment continues, "While the Report discusses various reform measures that policymakers could consider for improving the resilience of prime and tax-exempt money market funds ('PMMFs') and broader short-term funding markets, the data analysis and the potential policy responses presented in the Report are incomplete. This letter outlines additional data analysis and policy measures that the President's Working Group ('PWG') should consider in order to inform a comprehensive and effective set of policy recommendations. We have organized our letter into two main sections. The first section focuses on additional data analysis that the PWG should undertake to reexamine the PMMFs and short-term funding markets that led to the crisis. The second section focuses on additional policy responses that could be then considered as a result of the supplemental analysis discussed in the first section." It adds, "The Report passively explores numerous financial markets in terms of their interconnectedness and the motivations of various market actors but doesn't sufficiently address the drivers of these critical inter-relationships and cross-market investor behavior correlations that stem from fundamental structural vulnerabilities within PMMFs. This section of our letter highlights four key areas that were not examined in the Report and that require more research and consideration. A comprehensive analysis of the 2020 market dislocation is essential to making robust and effective policy recommendations. This additional analysis should be performed and documented by public agencies as input into PWG work in advance of proposing further PMMF reform options." (For more, see our March 3 Crane Data News, "Professor Gordon's Nutty PWG Comments: Backs Buffer; Weekly Holdings.")
