If money market mutual funds shift to a floating net asset value, impose redemption holdbacks or seek additional reserve capital through fees, corporations say they would stop investing in these vehicles and most likely reduce or fully liquidate their holdings, according to data released today by the Association for Financial Professionals.
Preliminary results from the 2012 AFP Liquidity Survey, found that 77% of companies would stop investing if the NAV were allowed to float, with 56% immediately liquidating all or some of their current MMF holdings.
Also, 80% of companies would stop investing if the funds were subject to redemption holdback provisions, with 73% immediately liquidating all or some of their current MMF holdings. And 66% said they would stop investing if fund companies were required to raise reserve capital (e.g., through fees), with 55% immediately liquidating all or some of their current holdings.
"These scenarios could have a profound effect on the economy," stated Jim Kaitz, AFP's president and CEO. "Treasurers tell us they would trim money fund holdings. Money funds are a main purchaser of commercial paper. Without a market for commercial paper, many companies could have a harder time funding operations."
In May, AFP received 391 responses to the 2012 AFP Liquidity Survey with responses stemming from corporations and other organizations, such as academic institutions, but not banks or financial institutions. Results of the full survey, which covers a broad range of liquidity issues that affect corporate treasurers, will be released next month.