This month's Money Fund Intelligence interviews Janet Fiorenza, Head of Municipal Fixed Income, and Kristian Lind, Portfolio Manager & Vice President, of Neuberger Berman. Fiorenza, who has been managing tax-free money funds for over 25 years, brought her team over from Weiss, Peck & Greer in early 2005, and Neuberger recently selected SSgA as its provider of taxable money market funds. Below, we excerpt from our latest MFI, which discusses the advisor's now exclusive focus on tax-exempt money market funds and recent events in the municipal money markets.
We first ask, "What's the biggest challenge managing a municipal fund today? Fiorenza responds, "I feel bank diversification is one of our biggest challenges at the moment. Given the creditworthiness of the domestic and foreign banks, you only want to own the highest rated, most creditworthy banks. With so many bank mergers taking place over the past several years along with the fact that several domestic banks no longer hold the three highest short term ratings, there are fewer high quality banks to choose from, thus making diversification that much more difficult.... However, I would say managing the seasonal flows has historically been our biggest challenge."
We also ask, "What's the status of the monoline insurers? Are there still worries out there?" She tells MFI, "We're not relying on any of the monoline insurers at the moment. We feel that FSA is a high quality monoline, and will ultimately succeed in being one of the only insurers to remain in place and have penetration in our marketplace. I'm confident we will never see anyone rely on the monoline insurers like they did so often in the past. As a team, we used a belt and suspenders approach and always looked at the underlying issuer, so our clients were not blindsided. As the credit crunch started to build, through careful study, we decided to exit the monoline insurers months ahead of many other fund managers. This gave our team enough time to replace those securities with paper backed by letters of credit."
Then MFI asks, "Are there a lot of unrated securities in the municipal market? Fiorenza says, "There are enough unrated securities in the marketplace to add value to our portfolios. We find that many of the unrated securities are very high quality. In order to purchase these, you need to have the proper research capabilities. You must remember that the SEC has never wanted money funds to rely on the rating agencies. As long as you have a credit research team in place that can properly review these securities, they can add value to your portfolio."
Finally, we ask, "What about AMT paper and the overall state of municipalities? Lind says, "There's definitely still issuance, and if it's priced appropriately there are definitely buyers for it.... Every state and local government is going through periods of pressure right now. Tax receipts are down, people aren't spending as much, and property values are falling. So I think all issuers are going to be under pressure going forward. It's a matter of assessing the situation and tightening up their budgets and seeing where they can make appropriate cuts."
E-mail pete@cranedata.us to request a copy of the full October Money Fund Intelligence interview and article.
