BlackRock Inc. (BLK), Fidelity Investments and Vanguard Group Inc., three of the five largest money-market fund providers, expressed support for the new rules adopted today by the U.S. Securities and Exchange Commission to end years of debate on how to make the $2.6 trillion industry safer.
The changes, to be put into effect in two years, will force funds that cater to institutional investors and buy corporate debt to abandon their traditional $1 share price. They will also give fund boards the ability to impose redemption restrictions and fees during times of crisis.
“Our initial reaction is that the SEC has struck a reasonable balance,” Nancy Prior, head of fixed-income investing at Boston-based Fidelity, said in a telephone interview. The firm managed $405 billion in money funds as of June 30, according to research firm Crane Data LLC.
After years of fighting tighter regulation of money funds, many of the industry’s biggest players have concluded they can accept the new rules and are eager to put the divisive debate behind them. Federated Investors Inc. (FII), manager of $202 billion in money funds, stood out for its continued criticism of the rules.
The SEC acted without “any evidence that instituting a floating net-asset value would do anything to eliminate runs,” Federated said in a statement posted on its website. A floating share price would also impose “significantly and costly daily operational burdens on money-fund users, limiting the utility of such funds as a cash management tool,” the company said.
Federated has previously threatened to sue the SEC over proposed reforms. Spokeswoman Meghan McAndrew wouldn’t comment on whether the firm was still considering legal action.
William McNabb, chief executive officer at Vanguard Group, said it would be “counterproductive” if any members of the industry were to challenge the new rules in court.
“Not to tell anyone how to run their business,” McNabb said, “but the end result suggests to me it’s time to move on.” Vanguard manages $171 billion in money funds.
In a separate statement, Vanguard said the new rules “preserve the value and utility that money-market funds provide to most individual investors.”
Tara McDonnell, a spokeswoman for New York-based BlackRock, which oversees $184 billion in money fund assets, said today in an e-mailed statement that “money-market funds will continue to prove a valuable cash investment strategy.”
The rules passed today cap a battle that began in 2008 shortly after the $62.5 billion Reserve Primary Fund became just the second money fund to lose money, or “break the buck.” A wider run on money funds that followed its collapse helped freeze global credit markets and pushed the Treasury Department to temporarily backstop almost all U.S. money funds.
The Investment Company Institute, the mutual-fund industry’s trade association, also referred in a statement to the SEC ruling as striking “the proper balance.”
Federated was identified as the most vulnerable of the largest providers to damage from money-fund reform in an April report from Moody’s Investors Service. Money-market fund assets “generate roughly 40 percent of the firm’s annual revenue and its brand image is intertwined with the product offering,” the rating company said in the report.
Rory Callagy, a Moody’s senior analyst, said today the report’s findings remain valid.
To contact the reporter on this story: Christopher Condon in Boston at firstname.lastname@example.org
To contact the editors responsible for this story: Christian Baumgaertel at email@example.com Sree Vidya Bhaktavatsalam, Mary Romano