July 30 U.S. money market fund assets grew a week after U.S. regulators handed down changes to the $2.6 trillion industry in an attempt to avert the risk of runs in case of another financial crisis, a private report released on Wednesday showed.
Assets of money funds, which consumers and corporations use as an alternative to bank accounts, increased by $1.89 billion to $2.589 trillion in the week ended July 29, the Money Fund Report said.
The main pillar of the rule changes requires 'prime' money funds used by institutional investors to float their values, instead of letting them maintain a stable value at $1 per share. The goal is to prevent investors from getting spooked by the prospect of funds breaking the buck, or their net asset value falling below $1 per share.
In addition, fund boards will have discretion to lower 'gates' on redemptions, or charge fees of up to 2 percent if market stress causes a fund's weekly liquid assets to fall below 30 percent.
Both measures are slated to take effect in two years.
"There is no rush to the exits," said Mike Krasner, managing editor at iMoneyNet Inc. in Westborough, Massachusetts, which publishes the Money Fund Report. "But you can't read too much into the first week. People are still trying to absorb the news."
Prime institutional money funds, which could invest in commercial paper and other short-term corporate debt as well as U.S. government securities, saw inflows totaling $3.26 billion in the latest week to $969.07 billion, iMoneynet said.
Retail and government funds are exempt from the floating NAV requirement.
Taxable retail fund assets fell in the latest week by $447.5 million to $674.33 billion.
Assets of government funds for institutional investors dipped $14.6 million to $689.67 billion, while those for retail investors edged up $20.7 million to $191.08 billion.
Tax-exempt municipal bond funds would not be required to have floating net asset values if they meet the definition of a 'retail' fund. Between 70 and 85 percent of tax-exempt funds are expected to qualify as retail.
Assets of tax-free funds tracked by iMoneynet fell $908.2 million to $255.84 billion in the latest week. (Reporting by Richard Leong in New York and Sarah N. Lynch in Washington; Editing by James Dalgleish)