Goldman: Investors Could Pour into U.S. Gov't Money Market Funds
Goldman Sachs Group Inc fund managers believe investors could pour $450 billion into money market funds that invest in U.S. government debt in response to new rules for the short-term funds, an executive told Reuters.
Goldman Sachs joins other asset management firms in preparing for the rules, which are designed to protect investors from extreme market stress. The Securities and Exchange Commission approved the rules in July 2014, and they take effect in October 2016.
Under the new rules, money market funds will impose fees to deter investors from pulling out all their money if too many want their cash at the same time. The rules will also require funds with institutional investors to record the value of their assets at market value daily, meaning the value of clients' holdings will fluctuate as the market rises and falls.
These changes could be alarming to investors who view money market funds as places to park cash they might want on short notice. The funds now hold about $2.7 trillion, a figure that is rising as the U.S. stock market sells off.
Government and U.S. Treasury money market funds are exempt from the new rules.
Jim McCarthy, Goldman Sachs' co-head of the global liquidity management business, said investors could end up pulling out about half of the $900 billion now in prime funds for institutional clients and shifting that money into government and U.S. Treasury funds
McCarthy said he had not yet seen this shift among Goldman Sachs clients, but it could happen in the future.
Not everyone expects a mass exodus from prime money market funds.
Peter Crane, whose Crane Data LLC is a leading money fund research firm, said that if the Federal Reserve raises rates in coming months as expected, yields on prime money market funds might rise much faster than those on government funds. Those relatively higher yields may convince some institutional investors to stay in prime funds, he added.
For Goldman's part, it said in July it would introduce a new government money market fund and convert another prime fund to a government fund to meet expected demand. Fund managers including BlackRock Inc have taken similar steps.
The regulations came after the failure of Lehman Brothers in September 2008 prompted investors to redeem money en masse from Reserve Primary Fund, a $62.5 billion money market fund that held commercial paper issued by the investment bank.
The redemptions triggered the failure of the fund. Investors panicked about the safety of their money market assets, and the government had to intervene to support the funds. (Reporting by Olivia Oran and Jessica Toonkel in New York; Editing by Dan Wilchins and Lisa Von Ahn)