Managers of U.S. money market funds are repositioning their product lineups in anticipation of the fallout from regulatory reform facing the industry, says Fitch Ratings.
In a new report, the rating agency says that proposed reforms for money market funds “could lead to some dislocation in the industry, including outflows from U.S. institutional prime money funds.” For example, it says that the proposed reforms could cause smaller corporate investors to “sharply reduce” their use of money market funds as a cash management tool.
As a result, it says some fund managers are repositioning their product offerings “to capture potential outflows and take advantage of changes to how investors might approach cash management.”
To that end, it says that some fund managers have “instituted significant client outreach and launched alternative liquidity products, including short-term bond funds, new government money funds, and floating net asset value money funds.” Others have encouraged clients to move cash into separately managed accounts to capture some of the potential outflows, it notes.
Alternatively, some firms are standing pat until the rules are finalized, Fitch says. It notes that, in June, the U.S. Securities and Exchange Commission (SEC) voted to propose two reform alternatives for the industry, but the rule hasn’t been finalized. And, it says that policy disagreements among the SEC’s commissioners could further delay the final rule.