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Investors Exit Prime Funds Ahead of Changes

Despite the outflows, a recent AFP survey suggests corporate finance executives are warming up to the concept of funds that float.

By Susan Kelly | Updated on August 10, 2016
Assets have been flowing out of institutional prime money funds ahead of the Oct. 14 implementation of new regulations that will require prime funds to adopt a floating net asset value (NAV). At the same time, though, a recent survey of finance executives suggests some are warming up to the idea of funds with floating NAVs.

Back in 2014, the Securities and Exchange Commission adopted new rules to try to curb future runs on money funds. In addition to requiring that prime funds let their NAVs float, instead of using a constant $1-a-share value, the new rules mandate that funds’ boards consider imposing redemption fees and gates if a fund’s weekly liquidity falls below 30%.

There were predictions earlier this year that institutional prime funds could see up to half their assets exit ahead of the changes. Between last October and this May, assets held by institutional prime funds shrank by more than $150 billion, a shift that mostly reflected fund companies’ conversions of prime funds into government funds because they thought the changes would make prime funds less popular.

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