Federated Investors, the third largest manager of money funds with $247 billion, hosted its quarterly earnings conference call on Friday, and, as usual, President & CEO Chris Donahue held forth on a host of issues related to money market mutual funds. He says in the Q&A, "Nothing has changed in terms of people's fundamental need for the convenience that these funds have offered since we brought these out in the mid-1970's. In fact, they need them even more.... The outlook is still very strong."
Donahue says of the money markets, "Conditions have improved here in October and we expect further improvements as confidence returns to the system. Measures taken by the Treasury, the Fed, and the SEC are well designed, in our opinion, to address liquidity and have already helped considerably. The newly announced Fed Money Market Investor Funding Facility, combined with the previously announced asset-backed commercial paper program and the Treasury money market insurance program, are designed to improve market liquidity and promote investor confidence in money market fund investments during a period of unprecedented market stress."
The Federated CEO also says, "Money market funds depend on trust and confidence in the financial system in order to be able to function properly. These programs are designed to be temporary measures for extraordinary market conditions, and we anticipate that they will not be necessary when market conditions improve significantly.... Money market funds are a vital part of our capital markets."
He continues, "We believe the core structure of the money market mutual fund has been, and will remain, essential to their use by investors. Core features, including, of course, dollar in, dollar out, maintenance of $1 NAV as a primary goal, diligent, independent credit work to avoid securities that do not meet the standards of minimal credit risk and other key components of 2a-7 related to quality and duration that are essential to the success of these products."
Finally, Donahue says, "We have played a critical role in the development of this $3.5 trillion industry, including the development of its regulatory and operating framework.... These investment products enable fund shareholders to access the benefits of a large, high quality money market fund, including daily liquidity at par, diversification, credit analysis, competitive yields, and convenience. This is the core value proposition of the money market mutual fund, and we believe it will transcend the difficult market conditions that we've experienced.... The game in the money fund will remain the same -- get the credit right."
