In the February issue of our flagship publication, Money Fund Intelligence, we interviewed Erik Preus, president of RBC's U.S. mutual fund family, and Scott Cabalka, senior portfolio manager. We discussed the fund family's recent money fund reorganization, its move into the institutional marketplace, and issues impacting today's money market mutual fund industry. Below are excerpts. (See also our News story last week, "RBC Renames Tamarack Funds, Moves Into Inst MF Space w/AAA Ratings.")
We asked, "Why expand your money market funds now? Preus answers, "I think we are well-positioned to grow in the money market fund space. We've gained some nice traction from large RBC affiliate clients, and in our introductory discussions with portals and exchanges, we're hearing there's a need for good, strong cash management from healthy financial institutions. The recent market turmoil has validated our long-standing approach to managing cash."
He continues, "We have a good organizational structure for it, a healthy parent, and for those reasons I think we will be successful.... In addition, we also believe there are private-labeling opportunities with other financial institutions that don't have the necessary scale.... Given our recent restructuring, we can accommodate those requests very efficiently, which has the potential to be attractive to certain firms."
What has been the key to success and the key to staying out of the headlines this year? Preus responds, "We have always taken seriously the investment objectives of the fund -- preservation of principal first, liquidity second, and yield third. With that philosophy we've maintained a competitive yield over time. I think that's at the heart of why we've been able to avoid so many landmines. And now we're seeing the markets and investors truly recognize the value of that philosophy."
We also asked, "Do you have to be a giant to manage money funds?" Cabalka says, "In the realm of the money fund area, one year or shorter, Voyageur manages over $20 billion, not only in money market mutual fund assets, but also local government investment pools, public funds with very short investment mandates and separately managed portfolios that fall within the general guidelines of where you might see a 2a-7 fund reside. We see scale as being economically important. But being a giant is not necessary, and perhaps may have its own set of challenges."
Preus continues, "I don't know that you'll have to be a giant to have a future in the money fund business. I do think that scale helps a money fund complex offer its funds at a competitive price and it gives the portfolio managers the flexibility to have the proper diversification in the portfolio, which may in fact, be even more important than ever going forward. From our standpoint, building out our institutional shareholder base is important to help build scale. Our objective is to have our institutional business ultimately equal our retail business. There is an important balance there, as a diversified client base with inherently different flows helps strengthen the fund overall."
