Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013

12559

Regulatory reforms will transform MMF industry, says Moody’s

RELATED TOPICS​

Changes in the money market industry will continue, as regulatory developments coupled with market dynamics force some money market funds (MMFs) to close or consolidate, says Moody’s Investors Service.

 
"Low interest rates, constrained asset supply, regulatory scrutiny and evolving investor preferences have already begun to transform the characteristics of money market funds," says Yaron Ernst, managing director of Moody’s managed investments group.
 
Proposed regulatory reforms in the US and Europe that threaten the traditional constant net asset value (CNAV) structure are one of the three key drivers of the changing MMF landscape, says Moody’s in its latest special comment "Money Market Funds and Regulatory Reform: A Business Model Hangs in the Balance."
 
MMFs are also faced with persistently low interest rates that continue to push investors to higher-yielding fund products, further reducing already-slim profits. In addition, the diminishing supply of highly rated investments are forcing managers to develop and launch new products, as the industry changes shape and business models follow suit, says the rating agency.
 
The report lays out three scenarios for the industry, as well as the expected implications for fund managers and investors:
 
(A) Variable net asset value (VNAV) MMFs entirely replace CNAV MMFs — there is a regulatory prohibition on the CNAV product generally. The probability of this scenario is low in the US and in Europe;
 
(B) Bifurcation of MMFs — only government/treasury MMFs are allowed to maintain their CNAV structure, while prime and tax-exempt MMFs can only be VNAV. In Moody’s view, this scenario is the most likely in the US, but does not apply in Europe because a separate framework for government funds does not exist;
 
(C) Buffers/holdbacks – requirement for capital buffers and/or redemption limits for all CNAV MMFs. This is the most likely scenario in Europe, with moderate probability of implementation in the US.
 
"Due to the changing product dynamics, we expect industry consolidation to accelerate, combined with a significant impact on the overall liquidity product landscape and investor preferences," says Ernst.
 

Latest News

Bloomberg and General Index (GX) have announced the expansion of their strategic collaboration which builds..
EFAMA has commented on today’s vote by the European Parliament in favour of a new..
Morgan Stanley Investment Management (MSIM) has announced the launch of the MS INVF Systematic Liquid..

Related Articles

Juan Nozal, Mapfre Asset Management
Juan Nozal, Fixed Income Portfolio Manager at MAPFRE Asset Management, talks about the outlook for fixed income assets over 2024, in what he predicts will be an outstanding year for this asset class...
Juan Nozal, Fixed Income Portfolio Manager at MAPFRE Asset Management, talks about the outlook for fixed income assets over 2024,..
n response to the increased attention to climate change risk, institutional investors, asset managers, and asset owners in the US are committed to implementing a variety of measures to address climate change and reach their net-zero goals, according to Cerulli Associates...
n response to the increased attention to climate change risk, institutional investors, asset managers, and asset owners in the US..
Lord Hollick, House of Lords
A House of Lords committee has raised “significant concerns” over the role of UK regulators, their ability to operate with genuine independence from government and how they are held to account...
A House of Lords committee has raised “significant concerns” over the role of UK regulators, their ability to operate with..
Rob Edwards, Morningstar
The complexities of assessing performance from responsible investment strategies have been laid bare after Morningstar’s ESG indices delivered a mixed bag in 2023...
The complexities of assessing performance from responsible investment strategies have been laid bare after Morningstar’s ESG indices delivered a mixed..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by