Mutual fund industry trade group the Investment Company Institute released its "2008 Investment Company Fact Book"" yesterday. This extensive collection of mutual fund analysis, facts and figures contains a host of important comments and tables relating to money market mutual funds. ICI summarizes, "Net new cash to money market funds surged in 2007, likely reflecting the attractive yields on retail money market funds and the influence of the financial markets' turmoil and associated declines in short-term interest rates in the latter part of the year."
The Fact Book says, "Institutional money market funds, used by businesses, pension funds, state and local governments, and other large investors, had inflows of $488 billion in 2007, following inflows of $151 billion the previous year. Inflows to institutional money market funds likely were boosted by two factors. First, short-term interest rates fell considerably in the last three months of 2007 as the Federal Reserve eased monetary policy. Institutional money market funds tend to receive inflows when short-term interest rates decline because the yields on these funds lag behind those available on competing products such as direct investments in commercial paper and short-term U.S. Treasury instruments."
It continues, "Second, the turmoil and illiquidity in credit markets that began in August 2007 may have prompted corporate treasurers to make greater use of institutional money market funds. Some corporate treasurers -- cognizant of the lack of liquidity in short-term credit markets and concerned about their ability to adequately monitor and assess credit quality -- may have taken the opportunity to redirect some portion of their companies' liquid assets away from direct purchases of short-term instruments and toward institutional money market funds. At year-end 2007, U.S. nonfinancial businesses held a record 31 percent of their short-term assets in money market funds."
On the surge in government fund assets, ICI says, "Difficulties in the credit markets also influenced the type of money market fund institutional investors gravitated toward. Investors faced with uncertainty about the extent of exposure to certain securities, such as extendible notes or those issued by structured investment vehicles (SIVs) backed by sub-prime mortgages with deteriorating credit quality, appeared to seek out the liquidity and safety of money market funds that invest primarily in U.S. government securities.... As of year-end 2007, U.S. government money market funds accounted for 34 percent of total assets of taxable institutional money market funds, up from 25 percent at year-end 2006."
Look for more excerpts from the ICI Fact Book in coming days.
