WASHINGTON — A majority of governments, nonprofits, corporations and institutional investors surveyed would either reduce or discontinue their use of money market funds if the Securities and Exchange Commission adopted certain reforms, such as switching to a floating net-asset value, according to a study done for the Investment Company Institute.
The survey, released Thursday, was conducted by the consulting firm Treasury Strategies Inc. for ICI, whose members are mutual funds and other investment companies that manage a total of $13.3 trillion and serve more than 90 million shareholders.
ICI said it planned to include the study in comments it will soon submit to the SEC.
The commission and other federal regulators have not formally proposed anything, but contend that new reforms are needed because if money market funds were to again “break the buck,” as happened in the fall of 2008 during the financial crisis, it could trigger investor runs.
SEC chairman Mary Schapiro has said the agency should consider requiring MMFs to move to floating net-asset values, meet new capital requirements, or impose restrictions on investor redemptions of shares.
Between Feb. 13 and March 6, Treasury Strategies surveyed 203 executives of the groups, including 32 from governments, higher education organizations and nonprofits.
Altogether, the entities represent about $176.5 billion of total short-term investment assets and $58.5 billion in total MMF assets, the firm said.
When asked what action they would take if the SEC required money market funds to move to a floating NAV, instead of maintaining the current constant $1 per share, 20 of 26 governments, nonprofits and higher education organizations said they would decrease or stop their usage of the funds for short-term investments. Of the total group of 196 executives that responded, 156, or 72%, said they would reduce or halt usage of MMFs.
“Local government investment pools by statute have to be stable at $1 NAV — so we would pull out of MMFs if this regulation passed,” one local government official told the consulting firm.
When asked how they would react to a requirement for funds to hold back 3% of any shares redeemed, which would be returned in 30 days if the fund maintained its $1 share price during that period, or would be used to offset losses if the fund did not maintain the $1 NAV, 23 of 26 governments, nonprofits and higher education groups said they would decrease their usage or pull out of the funds.
Overall, 169, or 87%, of 194 respondents said such a reform would cause them to reduce or stop using MMFs.
“I park my funds in MMFs overnight knowing that my money will be there the next day,” one executive told the firm. “If they get to hold onto three cents of my dollar for 30 days, I don’t have my money. Why not just keep it in a savings account, where at least I can get all of it?”
The consulting firm also asked about the impact of a requirement for money market funds to build up modest reserves as a capital buffer against market fluctuations, but only non-government MMFs.
When Treasury Strategies asked respondents where they would put their money if they withdrew if from money market funds, more than half said in bank checking and demand deposit accounts. Others said separately managed outside accounts or government securities.
“You’re talking about hundreds of billions of dollars leaving money market funds,” Cathy Gregg, a partner at Treasury Strategies, said during a conference call. “This is not a limited impact.”