Crane Data President & CEO Peter Crane led a panel of veteran money market mutual fund professionals entitled "Safety First in Money Market Fund Investing: Lessons Learned" at the 2008 New York Cash Exchange, which opened Wednesday at the Hilton New York. The audience of corporate treasurers, money fund distributors, and institional investors heard three presentations from companies that managed to steer clear of the blowups and bailouts that have plagued a number of funds advisors.
Lynn Evans, Managing Director of BlackRock, discussed "Risks in Liquidity Investing" and reviewed a detailed timeline of the subprime market meltdown. Evans asked "What have we learned?" She cited "Incremental yield is accompanied by incremental risk; non-Rule 2a-7 funds are not the same as 2a-7 funds; ratings aren't everything; liquidity matters; cash investing is not a low-risk activity; and, those who cannot remember the past are doomed to repeat it" as the most important lessons. Evans said there was "no recognition of the risks taken" by funds, given that unlike any other product investors expect to "get their money back with no notice, at par, with interest".
Dreyfus Senior Credit Manager of Taxable Fixed Income Research Louis Geser then presented on "Guarding Against Risk Migrations in Taxable Money Market Funds". He discussed the "asymmetrical" risk of money funds, and said, "Risk is a limited resource and should be assumed only to the extent that the risk taker is compensated." Geser added, "Disciplined, rigorous 2a-7 advisors need to provide a risk management 'margin of safety' because the types of risk" -- correlations, concentrations, dispersions, transitions and arbitrages -- "are more complex and more difficult to diversify away, and are harder to precisely anticipate."
Finally, Fidelity Investments' Senior V.P. Deb Watson talked on "Client Reactions to Market Turmoil". She cited liquidity in the marketplace, fund, and portals, as well as the flight to quality, as major issues, and noted an "increased scrutiny of holdings and 2a-7 compliance." Credit processes of the manager were also among investor concerns. More emphasis was being placed on portfolio composition, maturity distribution, and headline exposure, she told the NY Cash Exchange. Watson also noted a dramatic increase in the frequency of shareholder communications.
