For colleges and universities, charities, and other nonprofit organizations, money market funds are a preferred vehicle for cash management. Reforms to money market funds under consideration could reduce the options and the yield available for these institutions, with serious impact.
- Increase Risk and Cost of Operation
Many nonprofit institutions are required, by law or by investment policy, to invest cash only in accounts or products offering a stable value. Should money market funds be forced to adopt a floating NAV, many universities, nonprofits, and other institutions could be forced to shift to bank products that have historically paid lower yields or to other cash products that are less secure.
- Reduce Financial Options for Colleges and Universities
Colleges and universities that count on capital provided through money market funds will have increasing difficulty meeting their operating budgets and campus facilities requirements. Market reaction to the loss of a stable NAV would dramatically change the number of investors and the amount of capital that could be invested in debt issued by colleges and universities.
- Reduce Mission Critical Functions at Key Institutions
There are very limited substitutes available to fill the financing gap that would be created by the reduction of money market funds. Even if banks were able to raise new capital needed to meet demand, the lending market would be less efficient and costs would rise. This could force colleges and universities, other not-for-profits, and related institutions to cut back core programs and services.