Managers such as BlackRock Inc., Vanguard Group Inc., J.P. Morgan Asset Management, Goldman Sachs Asset Management and RBC Global Asset Management Inc. are retooling their cash management businesses in advance of changing regulations on net asset value for institutional prime money market funds.
Some firms are adding investment and/or distribution staffers; others are augmenting their short-duration fixed-income strategies; and still others are doing a combination of both.
The Securities and Exchange Commission issued rules July 23 establishing a floating NAV for institutional prime money market funds, which observers say could lead to significant outflows from institutional investors.
A November report from Moody's Investors Service Inc., New York, estimated U.S.-domiciled prime money market funds had $637 billion in assets as of Sept. 30, the majority of which was institutional. Moody's officials “would not be surprised to see reform-related outflows ... exceed 25% (or $159.25 billion) of total AUM between now and 3Q 2016 when the rules will be implemented,” Moody's Vice President Vanessa Robert said in an e-mailed response to questions.
BlackRock, New York, is already seeing demand, said Thomas Callahan, managing director and co-head of global cash management.
In response, company officials are adding standard short-duration mutual funds, short-duration exchange-traded funds and separate accounts.
“The demand for short-duration products is directly related to money market reform,” Mr. Callahan said. He said the money management giant might launch a municipal short-duration ETF “in the near future.”
Noting he is seeing a migration out of money market funds into separately managed accounts, Mr. Callahan added: “As we get closer to implementation in October 2016 we think that trend will continue.”
BlackRock executives already hired some fixed-income portfolio managers and plan to hire more in anticipation of this migration. They would not provide numbers.
In addition to working on standardizing its separate accounts process and limiting the amount of paperwork required to open such an account, company officials also are making modifications to BlackRock's trading network, Aladdin, to help institutional clients better understand their cash management needs and “adapt to the floating NAV world,” said Mr. Callahan.
“Cash was something clients didn't have to think about; it was pretty much auto-pilot,” said Mr. Callahan. “Now the auto-pilot's been switched off.” BlackRock had $281 billion in cash management assets under management as of Sept. 30. Although BlackRock spokeswoman Tara McDonnell told Pensions & Investments that the firm doesn't break down the assets, she noted most of the cash management AUM is institutional.