October 14, 2016 / 3:07 PM / a year ago

UPDATE 1-U.S. prime money funds may see more outflows - Fitch

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NEW YORK, Oct 14 (Reuters) - U.S. prime money market funds may see further outflows in the coming weeks after the final phase of regulatory reform for the $2.6 trillion industry is implemented, Fitch Ratings senior director of funds and asset management Greg Fayvilevich said on Friday.

Money fund operators have switched many of their prime funds for institutional investors into ones that own only government securities in an effort to be exempt from new rules from the Securities and Exchange Commission that went into effect on Friday.

Meanwhile, corporate treasurers and other cash investors have pulled money from prime funds, which they had used as an alternative to bank accounts, because they dislike the imposition of floating share price and redemption limits and fees during periods of market turbulence.

Since last October, prime fund assets have fallen by more than $1 trillion, resulting in reduced demand for short-term debt issued by banks and other corporations and higher borrowing costs for them.

Roughly $300 billion of the asset outflows from prime money funds will not return due to conversion of some funds into government-only funds, said Fayvilevich.

“You are looking at a new era for money funds,” he said. “Not all the money will come back.” (Reporting by Richard Leong; Editing by Chizu Nomiyama and Jeffrey Benkoe)

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