Moody’s outlines six things to watch for in the wake of new US money fund rules…
1. Will money fund managers alter their investment strategies?
Yes. VNAV pricing will help keep sponsors on the straight and narrow. Watch for more conservative and more liquid investments. The change to a variable share price will drive MMF managers to more conservative investment decisions.
2. Who will actually use gates and fees?
Probably no one, absent extreme conditions. Institutional investors in prime and municipal funds are sure to be wary of redemption gates and liquidity fees.
3. Will tax treatment change to accommodate VNAV?
Very likely. The SEC confirmed that the US Treasury and the Internal Revenue Service will release tax guidance, proposing new regulations to allow floating NAV investors to use simplified tax accounting method to track gains and losses.
4. Will money be on the move?
Some money will move to alternative products to avoid VNAV pricing or the risk of gates and fees. The changes to product structure are likely to cause MMF investors to shift some balances to alternative liquidity products with differing risk characteristics to meet the multiple needs of liquidity investors.
5. Will the new rules cause further industry consolidation?
Absolutely. Smaller players who have hung on until now may throw in the towel.
6. Will European regulators take a page out of the SEC’s new rule book?
Hard to predict. It remains to be seen whether the European Commission will align itself with the changes to be implemented in the US, or whether the two regulatory regimes ultimately will differ substantially.