New safeguards on money market funds expected from the Securities and Exchange Commission later this year will have a negative impact on some of the largest managers, according to a commentary released Tuesday by Moody's Investors Service, which found Federated Investors to be the most vulnerable.
Moody's analysts looked at the four leading independent money market fund managers — Fidelity Investments, BlackRock, Vanguard Group and Federated Investors — and concluded that all four would experience higher operating costs and lose some business to bank deposits if the proposed SEC reforms are enacted.
Federated is particularly vulnerable, Moody's said, because while the first three have smaller portions of their assets under management in money market funds, Federated derives roughly 40% of its revenue from $227.5 billion in money market funds, which represent 61% of total assets, compared to 5% for BlackRock, 6% for Vanguard and 23% for Fidelity.
One change proposed by the SEC would make prime institutional money market funds have a net asset value that would float on a daily basis, as opposed to the current stable share price of $1. Another option would be to keep the stable share price, but let the money market funds impose a 2% liquidity fee or redemption gates to temporarily suspend redemptions if a fund falls below 15% liquidity. A third option would be some combination of the two approaches.
The Moody's analysis showed different impacts on the four money market managers, based on each possible regulatory outcome. For BlackRock and Fidelity, the two firms rated by the ratings agency, “even the most aggressive reform scenario would not result in ratings changes,” Moody's said. Moody's officials did not anticipate any rating actions.
Moody's vice president and senior analyst Rory Callagy said in an interview that the proposed reforms “represent the most significant changes to the product in recent times, to the extent that you may see assets leave the industry. Our view is that the more diversified companies are in a better position.”
A Federated spokeswoman declined to comment.