(Bloomberg News) Fidelity Investments plans to convert its largest money fund into one that almost only buys securities issued or backed by the U.S. government after regulators imposed restrictions last year.
Fidelity is proposing that the $111.5 billion Fidelity Cash Reserves fund invest at least 99.5 percent of total assets in cash, government securities or repurchase agreements that are fully collateralized, according to a regulatory filing.
The move by the Boston-based money manager comes after the U.S. Securities and Exchange Commission last year made changes to how non-government and institutional money market funds should operate, including abandoning their traditional $1 share price in exchange for a floating net asset value. The rules also give money funds the ability use liquidity fees and redemption gates to prevent runs.
“The large retail funds all have to be asking themselves if they have to follow suit,” said Pete Crane, president of money-market researcher Crane Data.
“The big question is whether the government space is big enough to hold all of that money.” Fidelity’s proposal is subject to shareholder approval on May 12th.
The firm expects the changes to occur in the fourth quarter. The SEC began working with the Fed and Treasury Department on ways to buttress money funds shortly after the $62.5 billion Reserve Primary Fund was brought down in 2008 by a loss on Lehman Brothers Holdings Inc. debt.
The fund’s decision to re-price its shares below $1, known as breaking the buck, set off a panic among investors, who had assumed their principal would never be lost. They pulled $310 billion from money funds in a single week, almost exclusively from those that were big buyers of corporate debt, according to the SEC. That almost froze the $1.76 trillion market for commercial paper, a short-term IOU used by companies to pay everything from bills to salaries.
