Corporate treasury executives say they will decrease their company’s investments in money-market funds if the Securities and Exchange Commission implements proposed changes to the regulation of such funds. But they plan to invest more in money funds if the Federal Deposit Insurance Corp.’s unlimited coverage for business demand deposit accounts ends, as it is scheduled to do on Dec. 31, according to a survey of 242 treasury professionals conducted by Strategic Treasurer, an Atlanta-based consulting company, and Capital Advisors Group, an investment advisor in Red Bank, N.J.
“There is certainly terrific uncertainty with the FDIC and the money-market funds regulations, but it appears the treasury community is ready and able to swap investment channels in either one of those instances,” says Ben Campbell, president and CEO of Capital Advisors.
Companies’ investment accounts haven’t changed much since 2009, when treasurers responded to the financial crisis, says Campbell, pictured at right. “Now with regulatory changes potentially happening in the money fund world as well as on the FDIC side, we see a shift similar to the size of the shifts that we saw in ’08.”
Opponents of the SEC’s proposed changes have warned that new regulations could scare corporate treasurers away from money funds. The survey, which distinguishes among the different ways companies invest in money funds, suggests some companies have already backed away from the funds. Just 39% of the executives surveyed say their companies invest in money funds directly, down from 44% in last year’s survey. Only 14% invest in money funds via independent portals, down from 21% last year, and just 36% invest in the funds via bank portals, down from 49% last year.
If the SEC requires money funds to switch to a floating net asset value (NAV), 43% of companies that invest in the funds directly say they would decrease their investments, as do 35% of those who invest via an independent portal and 41% of the companies that invest using a bank portal. If the SEC put in place a 30-day redemption hold of 5% of assets, 52% of companies that invest directly say they would decrease their investments, as do 48% of those that use an independent portal and 52% of those using a bank portal.
On the other hand, companies might look more favorably on money funds if the unlimited FDIC coverage on bank accounts disappears. Nineteen percent of companies that invest directly in money funds, 8% of those that invest via independent portals and 14% of those using bank portals say they would increase their assets in money funds in that case.
If both changes occur—the SEC re-regulates money funds and unlimited FDIC coverage ends—Campbell says companies would probably turn to such short-term investments as government securities, direct purchases of corporate securities and repurchase agreements.
Campbell notes that some of his company’s clients have prepared for the possibility of new money fund regulations combined with limited FDIC coverage by setting up the infrastructure to make investments via a separate account. The companies are still investing in money funds, he says, and haven’t yet funded the separate account. But if there were significant changes in money fund regulations, “they would simply swap between the two options,” he says.
Campbell also sees a trend toward treasuries relying less on credit rating agencies and more on independent due diligence or other sources of information. Just 33% of the executives say they rely on credit ratings, down from 36% in last year’s survey, while 8% say they pay for third-party research, up from 4% last year.
Craig Jeffery, managing partner at Strategic Treasurer, notes that the survey also shows companies’ continued focus on diversifying debt, including more growth in debt laddering. And while there seem to be fewer covenants on companies’ debt, “the covenants that exist are a little bit tighter, more restrictive,” Jeffery says. “We think that’s pretty significant.”
And despite the widespread complaints about thin staffing of treasury departments, Jeffery notes that the survey suggests more hands on deck: while 12% of executives say their staffing decreased over the last two years, 19% say it increased.