The outlook for money market funds looks stable for next year, aided by US reforms and the newly agreed EU money market fund regulation, according to ratings agency Fitch.
The US money market reform, implemented on October 14, saw over $1 trillion (€939 billion) moved from prime to government funds. But Fitch said that asset levels have now stabilised and fund managers and investors are beginning to revert to a more normal portfolio strategy.
European money market fund reform will include similar rules to the US for some fund types although it has taken three years of debate to have these agreed.
The reforms will also be subject to an 18-month implementation period, so will likely be effective by the end of 2018 according to Alastair Sewell, senior director, Fitch’s money market fund team in London.
The forthcoming European money fund regulation could increase demand for short-term corporate and bank debt. However, Fitch expects the impact of the reform to be smaller than in the US because investors accustomed to existing constant net asset value (Nav) funds may be comfortable with the proposed low volatility Nav funds, which will still be able to hold non-government debt.
In addition, liquidity fees and withdrawal gates will also apply to government constant net asset value funds under the European proposals, which might make these funds less attractive to investors.
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