On July 23, the SEC adopted controversial reforms for money market mutual funds by a 3-2 vote. Some members of the financial media were quick to label the measure a death knell for these popular funds, which were created in 1970 by the Reserve Fund and became a major financial invention. So, let's add perspective, which you may want to share with your clients.
The SEC amendments affect two areas. For institutional prime money market funds only, the SEC will require a floating NAV, starting in two years. These funds account for 35% of total assets of the $2.6 trillion U.S. money market fund industry. In addition, the SEC authorized non-government funds (retail and institutional) to impose liquidity fees or redemption gates to protect against runs. About 65% of industry assets are non-government (tax-exempt or prime).
So, has the SEC killed MMMFs? Not exactly. A decade ago, MMMFs were rewarding cash-generators for investors and the mutual fund industry. But long before the SEC voted, MMMFs had been reduced to a utility.
Recommended For You
Total U.S. money market fund assets peaked at $3.76 trillion in October of 2008, and they have since declined by 32%. Twenty years ago, the average expense ratio in these funds was 52 basis points – a level that generated healthy profit for the mutual fund industry. In 2013, expenses dropped to 17 basis points, the Investment Company Institute reported, adding: "Expense ratios of money market funds have fallen sharply for several years as the majority of funds waived fees to ensure that investors' net returns remained positive in the continuing low interest rates."
Actually, it was six years of the Fed's zero interest rate policy (ZIRP) that seriously wounded a great American invention, a proven yield-generator for investors, and a once-thriving part of the mutual fund industry's profits. In September of 2008, the Reserve Primary Fund (ironically) "broke the buck" as investors rushed to safety in anticipation of the global financial panic. That event alone made the SEC reforms inevitable.
For clients who don't want to be exposed to potential impacts, you can suggest retail government MMMs. In reality, the only real reason to hold near-zero-yielding MMMFs over other cash options is for the "utility value" – i.e., easily moving money between investments.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
