Beginning October 14, 2016, prime and tax-exempt money market funds that were available to institutional investors were forced into a “floating” net asset value or “NAV” requiring them to value shares in increments of .0001 cents per share.
Only money market funds that hold more than 99 percent of their assets in U.S. government securities, along with funds for retail investors, are now allowed to offer a stable $1-per-share value.
Any investor not considered a “natural person” – meaning an “institutional” investor – is now forced to use a floating NAV.
As a consequence:
- Over $1.15 trillion has exited non-government money market funds, leaving the private sector and moving into Treasury and Government funds. As a result, short-term interest rates, including rates on short-term municipal debt, spiked to their highest levels since the financial market crisis. Prime funds, a key source of funding for corporations, saw a 72 percent drop from January 2015 while tax-exempt funds, a key source of funding for municipalities, universities and hospitals, experienced a more than 50% decline over the same period.
- In turn, borrowing costs have risen by tens of billions of dollars, and institutional investors no longer have access to low cost financing provided by prime and tax exempt money market funds, which offer a convenient and safe tool for obtaining market returns on the short-term management of money.