Standard & Poor's RatingsDirect recently released a report entitled "Capital Matters at Asset Managers," which discussed the ratings agency's "increased emphasis on capitalization for asset managers" given "recent market phenomena that are forcing some asset managers to shore up their funds." The report says, "Although we continue to focus on cash flow as the primary source of an asset manager's ability to service all obligations, we will increase our analytical focus on tangible equity regarding a company's ability to absorb unexpected losses."

S&P says, "[A] number of asset managers have provided financial support to prop up the net asset values of their Rule 2a-7 money-market mutual funds and certain cash management funds that had come under stress due to their exposures in structured investment vehicles (SIVs), mortgage-backed securities (MBS), and other less-liquid securities. These securities suffered market-value losses due to credit and liquidity problems. This support was given for 'business' reasons, not because of any contractual obligations.... Asset managers that are units of larger financial institutions, such as bank holding companies, have been able to call on their respective parent companies for support in times of trouble."

The report discusses the risk of contagion to other mutual funds should a money fund "break the buck". It says, "To prevent such an exodus, the management companies, for 'business reasons,' have supported their Rule 2a-7 money-market funds by contributing capital, securing letters of credit (LOCs), or purchasing underwater securities at or near par value. Financial support has not been limited solely to Rule 2a-7 money market funds. Asset managers, or their parent companies, have also been supporting certain cash management and stable value funds that were sold to institutional investors."

Finally, the report says, "To date, most independent asset managers have not had to pay out large amounts to support their retail money market funds or institutional cash management funds."

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