16.08.2016, 19:37
Fitch: Money Fund Reliant US Corporates Eye Liquidity Challenges
OREANDA-NEWS. Corporations that heavily rely on money funds for cash management may need to enhance disclosures and risk management in light of upcoming money fund reform, according to Fitch Ratings. We believe the reform is creating a new paradigm for corporations' cash management, which will require a more sophisticated approach to managing liquidity.
Regulatory changes to money funds coming into effect in October are expected to cause some US corporates to re-examine their comfort level with prime money funds. Under the new reforms, institutional prime money funds that are used by corporates may restrict investor liquidity during a time of stress. The funds' boards of directors can impose liquidity fees on shareholders looking to redeem cash, or gate the fund altogether, if the fund's liquidity level falls below the required regulatory threshold. Government money funds are not subject to these provisions, and many corporate treasurers plan to move cash from prime to government funds to avoid this risk.
Non-financial corporates historically have been big investors in money funds in absolute terms, holding $573 billion in money fund investments as of 1Q2016, according to Federal Reserve data. Fitch's analysis of the non-financial firms in the Fortune 100 showed that 33 noted investments in money funds and 22 disclosed the amount invested in money funds. For the 22 firms that disclosed investments, money funds accounted for 26% of their cash and cash equivalents on average.
Regulatory changes to money funds coming into effect in October are expected to cause some US corporates to re-examine their comfort level with prime money funds. Under the new reforms, institutional prime money funds that are used by corporates may restrict investor liquidity during a time of stress. The funds' boards of directors can impose liquidity fees on shareholders looking to redeem cash, or gate the fund altogether, if the fund's liquidity level falls below the required regulatory threshold. Government money funds are not subject to these provisions, and many corporate treasurers plan to move cash from prime to government funds to avoid this risk.
Non-financial corporates historically have been big investors in money funds in absolute terms, holding $573 billion in money fund investments as of 1Q2016, according to Federal Reserve data. Fitch's analysis of the non-financial firms in the Fortune 100 showed that 33 noted investments in money funds and 22 disclosed the amount invested in money funds. For the 22 firms that disclosed investments, money funds accounted for 26% of their cash and cash equivalents on average.
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