The Coronavirus Aid, Relief and Economic Security Act is expected to mitigate the decline in asset values and stabilize financial markets, which could help asset managers, a report from Moody's Investors Service said.
But some provisions provided to defined contribution plans could affect assets under management.
The report issued Friday by the credit ratings agency said the stimulus package will allow the U.S. Treasury to temporarily guarantee money market mutual funds at risk of breaking the dollar barrier should the Federal Reserve's Money Market Loan Facility fail to stabilize markets.
But the temporary provisions that the CARES Act provides to qualified retirement plans will have mixed implications for money managers. For example, 401(k) plan participants younger than 60 who need to access their savings can withdraw up to $100,000 from their accounts without the usual 10% penalty on early withdrawals, and any tax obligations from these withdrawals will be spread over three years. These withdrawals will reduce AUM, which Moody's classifies as a "credit negative" for managers.
"On the other hand, the CARES Act's waiving of required minimum distributions in 2020 for 401(k) and IRA holders who are 72 or older is positive," the report said. "Given depressed markets, RMDs would have forced owners to sell assets at low valuations."
Moody's added that private equity firms could also benefit from this stimulus package if their portfolio companies can receive financial assistance through such loan and loan guarantee programs as the MMLF and the Paycheck Protection Program for small businesses.
