Last Thursday in Washington, the Investment Company Institute held a meeting of its Institutional Money Market Funds Advisory Committee, which was formed two years ago to discuss industry issues involving money market funds. The latest gathering included Crane Data's Peter G. Crane presenting on "The State of the Money Market Mutual Fund Marketplace," as well as non-public discussions on the "Report of the Money Market Working Group and Rule 2a-7 Reform," Government Programs, and Credit Rating Agencies Reform."
Crane gave an overview of the current state of money funds, examining asset flows, support events, and a slew of money fund statistics. He told the audience of about 50 money fund industry heavyweights that he guessed that even in the "greatest disaster in the history of the money fund business", Reserve Primary Fund's "breaking the buck," this fund would even eventually show a positive return in 2008. He also disagreed with the common wisdom that investors and institutions are holding record levels of cash, citing recent ICI stock fund liquid asset levels as actually being near record lows.
On the current state of money funds, Crane told attendees that despite the unprecedented turmoil in the space, money fund assets remain just a little over $100 billion below their record level of $3.9 trillion (set on Jan. 14, 2009). He noted that money funds have almost 40 million shareholders, representing one of the most powerful political demographics in the country -- "people with money" -- that money funds bring in more revenue than Hollywood at the box office, in the range of $13 trillion a year, and that money funds have paid investors over $1 trillion in their 40-year history. He added that, according to press reports on campaign filings, President Obama was a money fund shareholder, holding almost one-half a million in a Northern Institutional Municipal money fund.
Crane's slides showed the shift away from Treasury funds and into Government and Prime funds since December, and noted that overall assets remain over $300 billion higher than they were in the weeks following Reserve. He told the ICI group that the historical relationship of money funds to Fed funds has changed; money fund yields have been running about 1/4 percent over the Fed funds target vs. 1/4 percent under in the past. Crane also detailed the Subprime Liquidity Crisis timeline, and reviewed the series of support action taken by almost 1/3 of all money fund advisors. He urged members to expand their educational and communication efforts to prevent investors' "bosses' bosses" from saying "Sell everything" in the future.
Finally, Crane speculated on what he thought the SEC's pending recommended changes to Rule 2a-7 would look like, mentioning the spread WAM and concentration disclosures as areas of interest. He also said that 75% of money fund assets are currently covered by the Treasury's Guarantee Program and that he didn't think Treasury could afford to have any fund "break the buck". He also noted that there was an outside chance of the program continuing. While money funds have had their problems, he noted that their competition has been "decimated". "In the land of the blind, the one-eyed man is king," quoted Crane.
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