New Money Fund Regulations to Impact Short Term Trade Receivables

Many corporate treasurers hold operating cash for liquidity purposes in places like short term treasuries, banks and money funds. According to the Investment Company Institute, corporate treasurers and professional investors have close to $900 billion in prime money market mutual funds. The funds, which hold assets in short term corporate debt, are about 35% of the $2.6 trillion money fund industry.

On June 5, 2013, the Securities and Exchange Commission voted unanimously to propose additional measures that would reform the way that money market funds operate to make them less susceptible to runs that could harm investors. There are two principal changes for those funds that invest in corporate or municipal debt:

  1. First, funds must mark to market the net asset value (NAV) for prime institutional money market funds, in essence no more accounting myth that funds are always worth $1 but are floating based on the value of the underlying investment owned.
  2. Second, funds will be allowed to put restrictions on withdrawals and charge investors a fee to redeem shares, in essence, no more 100% liquidity.

So what does this all mean for Corporate Treasurers?

These reforms will have drastic implications on how corporate treasurers invest. Yes drastic. The Net Asset Value accounting myth will soon be over. Institutional Money funds should have always been required to value their portfolio securities using market-based factors and sell and redeem shares based on a floating NAV.

While no one wants to wake up and find their Money Fund is worth $98.97 instead of $100 that is now possible.   Funds can no longer use accounting valuation that enabled them to maintain a constant share price of $1.00.

The U.S. reform package is set to go live October 14, 2016. In Europe, the European Parliament approved a law that would reform money market funds in Europe and retain constant NAV funds, though with severe restrictions. The legislation is not a done deal yet, but a major step forward.

This changes the short term investment game for operating cash for corporate treasurers. Will funds still be appropriate? Should treasurers revise their rules to invest in other assets, such as trade receivables? How?

I’ve been looking at this issue from many perspectives – asset originators, asset managers, institutional investors, etc. Suffice to say, when changes do come about, I believe more investors will be seeking short term trade finance assets as an alternative – yields are much higher, and while liquidity is not, these assets mature typically in 90 days.

As to Asset Managers, they will be looking more intensely to develop products that include trade receivables.

Please contact me at if you would like to discuss further.

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