SAN FRANCISCO -- Monday afternoon during a general session at the CTC Corporate Treasurers Forum, Richie Prager,managing director, head of the trading, liquidity and investments platform for BlackRock, provided insights into how much money will move from prime money market funds to government funds ahead of October 2016. From Prager’s perspective, a lot of money is going to move—but it isn’t going to stay put.
Prager explained that asset managers are constantly asking themselves if “today is the day” when there’s a mass shift of money that moves from prime to government funds. Although no one knows for sure when this move will occur, “as we get closer, the dialogue has moved from a concern about gates and fees, to accounting and operations,” he said. “Can people actually get their minds around what the tax implications are for a floating rate? Can they actually process something that has a price that changes every day? It’s very real to everyone in this room; you’re sitting there thinking about it.”
What Prager expects is a much larger migration to government funds than what was originally anticipated. “We think that, because there’s probably a lot more of you who have yet to be either 100 percent comfortable with the accounting side or 100 percent comfortable with the operational side,” he said. “So the convenient thing to do in the near-term is to go into a government fund.”
However, after a multitude for corporates make that shift, Prager fully expects them to look at the yield and ask themselves, “What did we just do?” BlackRock expects there to be a fairly sizable gap between the government rates and the prime rates. “So what we expect to happen is, as people will work through their accounting and operational issues, is that we’re going to see a migration back.”
Prager was quick to point out that this won’t be a 100 percent migration. “I think what people will end up having is a greater comfort level with some money in their government funds—it’s there, CNAV, it’s ready to go, and they can use that for their operational money—and then where they have a better idea of the visibility of the cash and where they don’t need money right away I expect to see that in prime funds,” he said.
Prager’s comments echo some of the sentiment in the new CTC Executive Perspective on investment policy. AFP recent spoke with some of the world’s largest asset managers and many of them do anticipate that after the massive influx of investments to government funds, a lot of that money will eventually come back over time.
Whether there’s a seismic shift in money market investments or not, the time for treasury departments to review their investment policies is now. If they don’t—they could find themselves in trouble with no time left to fix the problem.