Money market fund reform has been a slow process and the SEC is stepping up the pace this month with its issuance of proposed new money market fund regs. But the end result is completely up in the air because there is a comment period and an additional vote ahead—two significant hurdles the proposals must cross.
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Industry experts are saying the new rules will eradicate the money fund industry completely. As a result, some of the largest money fund companies are already preparing for the worst case scenario.
They’re launching other funds—money market mutual funds—designed to replace the dollar-for-dollar money funds. Federated was one of the first companies to launch such a fund, creating its Fidelity Conservative Income Fund (FCONX) in 2007.
PIMCO and Putnam also offer similar funds and Blackrock will join in by launching a fund before the year is out.
Outflows from money flows have slowed since the peak in 2007 of over $4 trillion. As of August 1st, outflows had abated to the $2.55 trillion level.
The rules set forth in 2010 actually gave birth to these new ultra-short bond funds after the Federal Reserve broke the dollar for dollar tie which caused the run on money funds. Federated’s early move into the new funds has enabled it to attract almost $6 billion in money fund assets.
So, regardless of how the SEC proposals end up, the money fund business looks like it could be in a growth mode