Companies to Liquidate Money Fund Holdings under Three Reform Scenarios - AFP Survey
Reduction in money market fund balances would harm commercial paper market, important source of corporate funding
WASHINGTON, June 20, 2012 /PRNewswire/ -- If money market mutual funds (MMFs) shift to a floating net asset value (NAV), impose redemption holdbacks or seek additional reserve capital through fees, corporations say they would stop investing in these vehicles and would most likely reduce or fully liquidate their holdings, according to data released today by the Association for Financial Professionals (AFP).
Preliminary results from the 2012 AFP Liquidity Survey, underwritten by RBS and RBS Citizens, found that organizations would be less willing to invest in MMFs and/or would reduce/eliminate their holdings of MMFs in their short-term investment portfolio under three regulatory reform proposals, which are reported to be under consideration by the U.S. Securities and Exchange Commission.
Results of the full survey, which covers a broad range of liquidity issues that affect corporate treasurers, will be released in July.
SCENARIOS WHERE COMPANIES SAY THEY WOULD STOP INVESTING IN MMFs:
- 77 percent of companies would stop investing if the net asset value (NAV) were allowed to float, with 56 percent immediately liquidating all or some of their current MMF holdings
- 80 percent of companies would stop investing if MMFs were subject to redemption holdback provisions, with 73 percent immediately liquidating all or some of their current MMF holdings
- 66 percent of companies would stop investing if fund companies were required to raise reserve capital (e.g., through fees), with 55 percent immediately liquidating all or some of their current MMF holdings
"These scenarios could have a profound effect on the economy," said Jim Kaitz, AFP's president and CEO. "Treasurers tell us they would trim money fund holdings. Money funds are a main purchaser of commercial paper. Without a market for commercial paper, many companies could have a harder time funding operations."
Recently, AFP members have offered their views before Congress to explain the impact that MMF proposals would have on both their investment choices and on their sources of funding.
AFP members are responsible for ensuring that their organizations have enough cash on hand to fund operations. They are uniquely positioned to observe the cash flows and investment decisions of their organizations. Since they work in a wide range of industries and in both public and private organizations of varying sizes, their opinions reflect a broad corporate perspective that is both operational and strategic.
ABOUT THE SURVEY
In May, AFP received 391 responses to the 2012 AFP Liquidity Survey, the largest independent survey on this subject to date and a follow-on to a survey of a smaller sampling of finance pros that AFP released in January 2011. The table above reflects answers to questions about money market funds. Responses represent corporations and other organizations, such as academic institutions, but not banks or financial institutions. AFP will release the complete results of the 2012 AFP Liquidity Survey.
View the money market fund highlights of the 2012 AFP Liquidity Survey: www.afponline.org/liquidity
The Association for Financial Professionals (www.afponline.org) serves a network of more than 16,000 treasury and finance professionals. Headquartered outside Washington, DC, AFP provides members with news, economic research and data, treasury certification programs, networking events, financial analytical tools, training, and public policy representation to legislators and regulators. AFP's global reach extends to over 150,000 treasury and financial professionals worldwide, including AFP of Canada; London-based gtnews, an on-line resource for the treasury and finance community; and bobsguide, a financial IT solutions network.
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