The Future of Money Funds

While many in the industry feel these changes have bolstered the resilience of money-market funds and addressed the issues highlighted by the financial crisis, there is much more to come. The full impact of Basel III, which requires banks to issue longer-term paper, has yet to play out for the money fund industry. Solvency II, the revised capital adequacy regime for insurers in Europe, and the International Accounting Standards Board’s financial statement presentation project could both have adverse implications for money funds. Meanwhile the U.S. President’s Working Group on Financial Markets and the U.K.’s Financial Stability Board have initiatives in motion that could have significant consequences for funds.

Some question whether the regulatory changes will kill off this type of fund—at least the stable or constant net asset value (CNAV) flavor of money-market fund, which maintains a constant share price of $1 (or £1, or €1). While floating or variable net asset value (VNAV) funds are common in mainland Europe, the money-market-funds industry in the U.S. and U.K. is predominantly made up of CNAV funds.