Two weeks ago, Crane Data hosted its Money Fund Symposium conference in Philadelphia, attracting over 250 people to our first in-person event since January 2020. One of the highlights was the "Major Money Fund Issues 2021" session, which featured a panel made up of Dreyfus CIS's John Tobin, Invesco's Laurie Brignac, and UBS Asset Management's Rob Sabatino. Moderated by Ed Baldry of EPBComms, the segment discussed potential regulatory reforms, Prime MMFs, separate accounts and digital assets, among other things. We excerpt some of the highlights below. (See our Sept. 29 Crane Data News, "Callahan, Cunningham Money Fund Symposium Keynote Talks ESG, Regs," and watch for coverage in the next issue of Money Fund Intelligence. Note: For those that couldn't make it, our Money Fund Symposium recordings and materials are available here.)
When asked about SEC reforms, Brignac comments, "I feel like we did the hard reforms already, quite honestly.... I am a little bit more optimistic [that] we're going to hopefully take care of the fees and gates situation. But I also know there's no way they're going to come in and just make that change and de-link fees and gates. So, there are going to be some other things, and I think we've talked about them -- additional liquidity, etc. I think the more draconian [measures] aren't really going to go anywhere.... We'll see what we get, but I know there's a push for consistency across the globe. [But I'm hoping] regulators recognize the differences and the nuances between the U.S. and the rest of world."
Describing Invesco's comment letter, she says, "We really kept it simple, because in working with all the different industry bodies ... ultimately, we were pretty much, for the most part, saying the same thing. We wanted to hammer home not only the fees and gates [de-linking], but also the market structure. Because one of the experiences that we had during the crisis is we had clients come to us, and they were having trouble selling. It was clear it was not just a money fund problem, but a front-end problem [that] impacts all of our clients, whether they are corporates or asset owners themselves."
Sabatino responds, "[We're] all feeling a little more positive.... I think a tremendous amount of work has been done over the last decade educating the regulators. So this go-around, we're seeing that they are more informed. They understand the issues and [the fact] that it's not money market funds but it's the money markets. It's worked. So that's really positive from my standpoint. I think having a solution that makes money market funds even more resilient, but then also addressing some shortcomings in the market would be the way to go."
He continues, "So, I'm hopeful that we are not going to have some huge sea-change, and the usefulness of money market funds the way we know it doesn't change. We've talked to a lot about keeping all the flavors and being able to offer investors what they want, and it sounds like you've made a lot of headway there. So, I think things are good. It's great to hear that it's not around the corner. While we'll hear something from FSB soon, it seems the regulation and change specifically in the U.S. seems to be a ways off.
Tobin warns, "I think one of the flaws, unfortunately, when working in a group, is you need to meet [at the lowest] common denominator. And the common denominator [in earlier reform rounds] was, 'We should ask [regulators] to do nothing'.... But when you don't hold the power, that's probably not the right approach. So, we told the SEC we're good, but the SEC didn't agree with it, and we got gates and fees. So, I think it's something to think about if we face such an endeavor on a relatively nearer term.... We certainly asked to 'de-couple,' I think that was clear.... You think about weekly liquid assets.... We also asked for a 10% [holding] in Treasuries."
Baldry asked, "What are the odds the SEC does nothing?" Brignac responds, "Ultimately, no, they're not going to just get rid of fees and gates. There's going to be a pound of flesh. So let's give them something that is more palatable.... Ultimately, holding more liquidity is fairly easy, because we're doing it already.... But some of the stuff, minimum balance at risk, etc. [is a nonstarter].... I think the more complicated you make these products, the [more problematic it is]. Clients don't know what to expect. I think that was one of the best things that they had done in terms our regulation is really the increased transparency."
When asked if he's sticking with Prime, Tobin answers, "Yeah, absolutely.... Obviously, we need to see what reform looks like. There are certain provisions in there, like swing pricing, capital buffers, etc., that could fundamentally change the product or ... the financials of the product.... There [could be] aspects of reform that basically snuffs out the product. So, we need to see the detail. But philosophically, all-in."
Brignac adds, "Clients still want Prime. I'm sure a lot of people seen the growth of private accounts, separate accounts, those are generally people coming to you trying to get around private funds. It's all prime. So, you know, it's interesting. We are seeing growth in prime just not 2a-7.... The hard part about separate accounts is that it is more work for the end investor.... It takes a little more time."
Finally, on SMAs, Sabatino states, "As yields decline, investors are more interested in, 'How do I get an extra 5, 10, 20 basis points?' Those are the conversations we're having, assessing the risk tolerance. How much you really need in cash on a daily, weekly, or monthly basis. Can you park those further out the yield curve? Can you go down in credit quality? What is your ultimate objective? If it's yield, will you consider, a hybrid strategy? ... It becomes more dynamic. It's based on obviously the end goal of the investor. But as Laurie said, it's a little more time intensive.... There are many factors in there, but there is a zero rate environment, that's what the smart cash is looking at."
