Ready to Bail on Money Funds

Mandated floating NAV would prompt most treasurers to pull out assets, survey says.

Treasurers would vote with their feet if the Securities and Exchange Commission implements some of the changes in money fund regulations currently under discussion. Most say they would stop using money funds or decrease their use if the SEC requires funds to adopt a floating net asset value or imposes a redemption holdback on the funds, according to a survey commissioned by the Investment Company Institute and conducted by consultancy Treasury Strategies.

The survey results raise the possibility of “hundreds of billions of dollars leaving money market funds,” says Cathy Gregg, a partner at Treasury Strategies.

The SEC may also require money funds to establish a loss reserve, or capital buffer. When asked about that prospect, 36% of finance executives who invest in money funds said they would decrease their use of funds or stop using them. When they were asked how they would feel about getting 5 basis points less in yield because of the cost of such a reserve, 92% of the remaining executives balked.

“If corporations knew or thought they were contributing even a small amount of yield to support the buffer concept, almost all of them would stop or decrease using money market funds altogether,” Gregg says.

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