It's Money Market Reform Day and Bank Loan Investors Are Celebrating
October 14, 2016 has been a date marked on the calendars of many asset managers for quite some times now--a deadline looming for more than two years since the SEC issued new rules for money market funds designed to prevent funds from "breaking the buck."
The new rules added liquidity fees and redemption gates, and most notably, demanded that certain funds adopt a floating NAV versus a constant $1 per share value. All affected funds were required to implement these changes by October 14, 2016.
That day is now here, but the most significant impact of these new regulations has already been felt. As the deadline approached, investors anticipating the changes took action accordingly. The result was an exodus in prime funds to the tune of $1.1 trillion in the past year.
But the consequences of the reform go beyond the trends in fund flows in the last 12 months. The prime fund outflows caused major moves in Libor, which has tripled in that same timeframe. As an experienced credit manager with a long history in bank loans, this rise in Libor gets us excited. We believe this trend can benefit floating-rate securities (like loans) given the lower duration compared to fixed-rate securities.
Chris Mawn, portfolio manager of Highland's senior loan ETF and co-portfolio manager of our floating-rate opportunities mutual fund, recently wrote a piece on rising Libor for Alt Credit Intelligence. Click below to access our exclusive content and download the article.
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