Welcome to a brave new money market mutual fund world.

Greg Fayvilevich Fitch Ratings Director

Two years ago SEC chair Mary Jo White released her money fund reform package, and on Friday the final phase of that reform took effect. Institutional prime and municipal money funds now have to float their NAVs (retail funds can still stick to a fixed $1.00 NAV), and all money funds can now impose liquidity gates or redemption fees when the going gets really rough.

Over the last 12 months, more than $1 trillion has net flowed out of prime money funds (most of that out of institutional prime money funds), and much of that has moved into government money funds. In many cases, mutual fund shops have converted prime money funds into government money funds. And that shift seems to have translated into U.S. Treasury bill purchases, which hit a record $138 billion last Tuesday, Wrightson ICAP chief economist Lou Crandall tells Reuters.

Yet even though the reforms have now taken effect, Fitch's Greg Fayvilevich (senior director of funds and asset management) predicts that more prime money fund outflows are still ahead, Reuters reports.

Another potentially huge impact of the new regs is in 401(k)s and other defined contribution retirement plans. 401(k)s tend to include a variety of investment options across different style box areas, and most use either a money market mutual fund or a stable value fund (either a straight insurance product or a pooled collective fund). Word on 401(k) street earlier this year, as noted by our sister publication 401kWire, is that many recordkeepers will not be accommodating liquidity gates and redemption fees. Stable value funds could see big 401(k) market share gains against money funds; indeed, 401kWire reports that some stable value players are making big pushes this year.

Investor's Business Daily and Pensions & Investments both offer updates on the reforms taking effect. 

Edited by: Neil Anderson, Managing Editor


Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE