In its latest monthly "Fund Profile", the March issue of our Money Fund Intelligence newsletter ($500/yr) features an article entitled, "Research Is Fidelity's Middle Name in MMFs." We excerpt from the piece below.... This month, we interview the President of Fidelity's Money Market Group, Robert Brown, who succeeded Charlie Morrison in late 2009. (See our Fidelity profile in the January 2009 MFI, "Fidelity's Morrison on Money Market Funds.") Fidelity remains by far the largest manager of money funds in the U.S. with over $425 billion as of Feb. 28, 2011, according to Money Fund Intelligence XLS. Our Q&A follows.

Q: Tell us again about Fidelity's history with money funds. Brown responds, "We've been in this business for a long time. We launched our first money fund in May of 1974, Fidelity Daily Income Trust, which was the first fund to offer check writing and our first no-load fund. Fidelity Cash Reserves, launched in 1979, is now the largest retail fund in the industry. Our first tax-exempt fund, Fidelity Tax Exempt Money Market Trust, was launched in 1980."

He continues, "In November 1997, when we moved into our current trading facility in Merrimack, N.H., we had $193 billion in fixed income assets. Today, we have more than $700 billion. We are the largest money fund provider, with approximately a 16% market share.... We offer more than 40 funds, ranging from General Purpose, Government, Treasury, and Tax-Exempt mandates.... I worked with Charlie Morrison through the market crisis in '07 and '08 as the managing director of research, and subsequent to that was asked to take over my current responsibility."

He says, "When you look at, holistically, the risks that we manage in the funds, they include credit, structure, interest rate, and liquidity. We believe that managing all these risks well is essential, but monitoring credit risk has proven over time to be particularly critical. So my background, essentially 16 years in either analyzing credits, managing credit portfolios or trading credit securities ... really fits well into this role from an oversight perspective."

He adds, "We have more than 50 analysts dedicated to fixed income, primarily on the research side, but we are also building out our quantitative efforts.... Quantitative research was one area in particular that we felt required additional resources due to the required stress testing which was part of the most recent changes to Rule 2a-7, but also to boost our ongoing efforts in scenario analysis, risk adjusted returns, and overall risk management. We are continually reinvesting in this business and have dedicated significant resources to that effort."

Q: How did Fidelity weather the storm? Brown answers, "As you know, the period of '07 and '08 was unlike any that we've witnessed. I think the framework that we've had in place ... allowed Fidelity to navigate through the myriad of issues in the marketplace and position our funds appropriately for shareholders. In '07 and '08, we maintained the same type of conservative investment approach as it relates to our three primary tenets of how we manage money, which are principal preservation, liquidity and superior risk-adjusted returns, in that order.... The consistency of that message and the resources that are behind this business have not changed."

Q: What do you consider to be the biggest challenge today vs. historically? Brown responds, "It is certainly the low rate environment and a very challenging regulatory environment. Look at the Dodd-Frank bill, or Basel III. Banks are being forced to issue longer-dated securities while money funds, given the most recent wave of regulation with respect to the new 60 day WAM and 10% and 30% liquidity requirements, are being forced to invest in shorter dated securities. This leads to a disconnect where opposing regulatory forces create a strain on available supply."

He adds, "One of the positive attributes, I believe, is ... that general purpose funds ... are now carrying much more exposure to government and Treasury securities. In fact, Treasury securities now represent for most of our general purpose funds our single largest holding.... There have also been challenges created by the PIIGS crisis and the potential contagion risk from a European perspective. We continue to monitor that very, very closely."

Look for more excerpts from our Fidelity interview in coming days, or e-mail Pete to request the latest issue of Money Fund Intelligence.

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