Tags: ecb | asset | managers | fund

After ECB Cut, US Asset Managers Tighten Fund Access

Friday, 06 Jul 2012 02:52 PM

 

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Three big U.S. money managers have restricted investor access to European money market funds in the wake of the European Central Bank's interest rate cut.

JPMorgan Chase & Co, BlackRock Inc, which is the world's largest money manager, and Goldman Sachs Group Inc on Friday all confirmed the restrictions.

JPMorgan spokeswoman Kristen Chambers said the New York bank's investment arm temporary closed funds to new investors after the ECB's rate cut on Thursday, "because we think it will help prevent further dilution in yields, which is in the best interest of clients."

A notice to investors shows JPMorgan has limited investments into five funds from new and existing investors, though shareholders can continue to move assets out of the vehicles.

BlackRock has also limited access to a pair of European money funds, a spokeswoman said.

A Goldman Sachs official in London confirmed reports that the firm is not accepting new money in its GS Euro Government Liquid Reserves Fund because it cannot invest at the new rates without substantially diluting the yield for existing shareholders.

The European Central Bank on Thursday cut its main refinancing rate to a record low of 0.75 percent, following a dire batch of data that showed even Germany, the euro zone's economic powerhouse, entering a modest downtown. The lower rate could send investors looking for new places to put cash to work, such as money funds.

But money fund managers are hardly looking for more cash from investors, as the fund restrictions showed. U.S. fund operators have been squeezed by low interest rates and have slashed fees just to keep clients invested in the cash-management vehicles.

"It's absolutely more difficult to find places to park money," said Greg Zandlo, an adviser with Minneapolis-based North East Asset Management, Inc, which has $75 million in assets under advisement.

Given that money markets have been earning close to zero over the past couple of years, advisers like Zandlo have been turning to alternatives for some time now. Zandlo said he has been relying on certificates of deposit and state-specific municipal bond funds as a proxy to money market funds.

"They provide less liquidity but it amps up the return in lieu of holding cash," he said.

Operators of equity mutual funds often close the vehicles to new investors when managers have difficulties finding new places to invest cash. Peter Crane, publisher of the cranedata.com website, said money funds have also been temporarily closed in response to low interest rates, such as in 2009 and 2010 at several U.S. Treasury money funds.

Technically, U.S. investors cannot buy the restricted funds. But they are available to multi-nationals including European subsidiaries of U.S. corporations, Crane said.

In a way, the European fund restrictions mark a welcome problem for the money funds: too much investor demand. In Washington, U.S. regulators are mulling changes for the funds out of concerns they could face the opposite problem: big institutional investors rushing to pull money out of the funds.

Investors have rushed for the exits before, pressuring dozens of fund companies to provide support to help the funds maintain the $1 per share net asset value that investors have come to expect.

But industry executives argue rule changes in 2010 have made the funds more resilient. Investors have steadily maintained around $2.5 trillion in U.S money funds since last year, something that analysts say reflects a lack of few better alternatives.

© 2014 Thomson/Reuters. All rights reserved.

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