The Investment Company Institute, which hosts its annual General Membership Meeting next week in Washington, has released the online version of its 2010 Investment Company Fact Book. The ICI's annual statistical compendium contains a wealth of statistics on mutual funds and a number of tables on money market mutual funds. The money fund section may be seen on pages 34-37, the money fund data tables may be seen on pages 160-166, and info on institutional investors may be seen on pages 179-184.

Under "Demand for Money Market Funds" on page 34, the Fact Book says, "Money market funds, particularly those funds invested only in U.S. government securities, experienced substantial outflows in 2009, reflecting the search for higher yields in an environment of low short-term interest rates accompanied by a steep yield curve and an unwinding of the flight to safety by investors in response to the financial crisis of 2007 and 2008. Retail money market funds, which are principally sold to individual investors, saw outflows of $307 billion in 2009, following inflows of $284 billion over the previous two years."

It continues, "Money fund yields followed the pattern of short-term interest rates in 2009, hovering between 0 and 25 basis points. In addition, yields on money market funds dipped below those on bank deposits over the entire year -- the first such occurrence in the past 15 years. In general, retail investors tend to withdraw cash from money market funds when the difference in interest rates between bank deposits and money market funds narrows. The sizable outflows from retail money market funds in 2009 do not appear to be atypical considering the negative interest rate spread."

The Fact Book also says, "Institutional money market funds -- used by businesses, pension funds, state and local governments, and other large-account investors -- had outflows of $232 billion in 2009, following inflows of $1 trillion during the previous two years. Outflows from institutional money market funds likely reflected the low interest rate environment and the start of an unwinding of the flight to quality by these investors in 2007 and 2008."

The ICI work continues, "The tumult in financial markets around the world that started in August 2007 and continued through early 2009 led many institutional investors to seek out the liquidity and safety of money market funds that invest primarily in U.S. government securities. These funds, which can invest in U.S. Treasury debt solely or a combination of U.S. Treasury debt and obligations of U.S. government agencies, received $602 billion in net new cash flow in 2008 on top of $281 billion in 2007."

"In 2009, as various government facilities provided much needed liquidity to short-term credit markets and financial markets stabilized, institutional investors likely were optimistic that the firestorm had passed. They began shifting away from U.S. government money market funds, which had outflows of $312 billion, and toward non-government (prime) money market funds, which had inflows of $107 billion. Nevertheless, U.S. government money market funds comprised over 40 percent of institutional taxable money market assets at year-end 2009, up from only 24 percent at year-end 2006, prior to the start of the financial crisis," says the Fact Book.

Finally, ICI writes, "U.S. nonfinancial businesses reduced their holdings of money market funds in 2009. During the financial crisis, corporate treasurers made extensive use of institutional money market funds; at year-end 2008, 35 percent of their short-term assets were in money market funds. By year-end 2009, nonfinancial businesses held 30 percent of their short-term assets in money market funds, although this ratio was still above the 24 percent recorded at year-end 2006, prior to the start of the financial crisis."

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