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The End or the Beginning for Money Market Funds?

The End or the Beginning for Money Market Funds?

by Helen Sanders, Editor

In August 2014, the Securities and Exchange Commission (SEC) in the United States adopted reforms to Rule 2a7 funds (US money market funds - MMFs) with the aim of reducing systemic risk. Inevitably, these changes have been met with a mixed response, not least due to the uncertainty that will undoubtedly continue until full adoption of the reforms in 2016. In reality, however, are these reforms likely to mark the end of the MMF era, or conversely, given the other market and regulatory changes that are taking place in parallel, are we on the brink of a new phase in the growth of MMFs? As Jim Fuell, J.P.Morgan Asset Management highlights,

“We see two key trends in corporate investment appetite: firstly, the impact of regulation, not only MMF regulation, but wider changes such as Basel III, which in fact creates a tailwind for MMFs; secondly, prolonged low interest rates, particularly in Europe. While companies will not risk assets to avoid negative yield, the convergence of these two issues is prompting treasurers to review their investment policy and consider alternative investments.”