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Drama for the Masses, With No Happily Ever After

Date: October 3, 2014

Originally published as a guest blog in Wall Street & Technology on August 21, 2014

After a long year plus of waiting, the much anticipated SEC vote on changes to the money market fund rules finally happened last month.  The proposal garnered a lot of attention over the past year and rightfully so, as it was chock full of high profile, contentious issues like floating net asset values and redemption gates, and caused much speculation around the future of institutional prime money market funds, tax complications, and who will be suing whom.  The final rule kept the drama going by enacting all of the things that made the proposal so controversial.

The interesting thing about this rule, and in effect what has added to the sense of high drama, is the scope of impact.  Most asset management regulation has somewhat of an insider feel about it.  I have long believed that hedge funds escaped regulation as long as they did because the topic is so boring to the average person that it could never sustain interest long enough to make it through both houses of Congress – it took a global financial crisis to make that happen.  But the 2014 money market reform is no independent film.

The impact of the 2014 version of money market reform has spread to just about every corporate treasurer of every company and every municipality in America–to CEOs, mayors, state agencies, endowments, and just about anyone else who manages cash for an institution or is an executive at an institution.  Because of the July vote, they are now forced to spend a lot of time and effort to implement their Plan B for cash management, which to a much larger degree than before will not include money market funds.

Stable NAV money market funds were a convenient, all purpose option for cash management; a single investment choice that fit a lot of cash management needs.  Replacing these funds will require a more complex and varied set of investment choices for those tasked with managing cash.  Some might go for private liquidity funds or separately managed accounts.  Some might move more money to banks.  Some might keep their cash in the floating rate prime funds.  All of them hoped it would never come to this.

This latest round of money market reform was a rare occasion where the asset management industry was on the big screen in a big way, but for most, the story had an unhappy ending.

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