Eight months after the most sweeping changes to the U.S. money-markets industry in over three decades siphoned more than $1 trillion from so-called prime funds, the industry’s biggest operators are coming to the realization that the cash isn’t coming back anytime soon.
Assets in prime funds, which buy certificates of deposit and company IOUs, have increased by just $40 billion since regulatory efforts to squelch risk in the industry prompted an exodus of cash to government-only funds, which invest in T-bills and other short-term U.S. debt. The inflows, almost exclusively into the institutional prime sector, have boosted assets to about $160 billion. On the eve of the compliance deadline in October, more than 40 percent of respondents to a Citigroup Inc. survey expected institutional prime funds to reach an equilibrium size of $400 billion to $700 billion. A plurality saw that equilibrium occurring in the second half of 2017.[…]Still, investors may have chosen to leave the money market space altogether and opt for alternative products like private liquidity funds offered by asset managers such as Federated Investors. These vehicles follow similar investment mandates as prime funds, but are not subject to the regulations that were implemented in October.
Regardless of how much money moves or where it goes, some conference participants such as Tony Carfang, a Chicago-based managing director at Treasury Strategies, said assets won’t remain in government funds forever as the desire for higher returns win out.
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