On Tuesday, we reprinted the first half of our December Money Fund Intelligence interview with Wells Capital Management Head of Money Markets Dave Sylvester, Wells Fargo Advantage Funds President Karla Rabusch, and Head of Money Fund Distribution Brad Marcus. Today, we excerpt from the second half.... MFI: What's your outlook for the Fed? Sylvester: I think that the Fed has put a lot of focus on transparency in their communication policies, and yet that doesn't help if the message is inconsistent and unclear. While I appreciate the independence of the different Fed governors and appreciate a robust discussion of the issues as much as the next person, it probably doesn't help Fed policy to have a number of different messages in the market place. The investing public perceives the Fed as one organization and I think they expect to hear one message.
We still think that the Fed missed a huge opportunity 12 to 24 months ago. What they should've done at that point is raised rates ... and said, 'You know what? The crisis is over. We no longer have a need for these extraordinarily low rates. We are going to keep rates low -- 50bps, 1% -- we are going to keep them accommodative to aid economic growth, but the crisis is over.' That would have been a huge boost to confidence.... Instead they reemphasize how bad the crisis is, and then wonder why consumer and investor confidence is at lows. If the Fed thinks it's bad out there, why should the investing public believe otherwise?
MFI: How are fee waivers impacting Wells' money funds? Rabusch: Like our competitors, we certainly are impacted.... However, we are fortunate to be part of a well-diversified company with revenue streams from multiple products. MFI: Is Wells Fargo committed to the business? Rabusch: Wells Fargo is wholly committed to the mutual fund business. Our money market funds are a significant component of our investment product line-up. They serve as an important investment solution for clients across the enterprise, with more than 80% of our money market fund assets held by clients with other Wells Fargo relationships.
MFI: How does Well's size help? Marcus: Being affiliated with Wells Fargo, a well-respected and admired banking organization is in itself a benefit.... Through this association, we have access to many Wells Fargo customers within our retail and institutional franchise.... On the topic of size, being a top 10 money fund provider has its own inherent advantages. Fund scale is important to many investors that desire large funds and seek a diversified product line up.
Sylvester: One of the things that a larger asset base gives us is it enables us to afford a bigger team. When regulatory changes, rating agency changes or market challenges present themselves, we can bring together the resources to address whatever the issue is. Being part of Wells Fargo also gives us a geographic breadth. We have 26 team members located in offices in Minneapolis, Charlotte, and San Francisco who are devoted exclusively to money market funds. Having multiple offices give us an unparalleled business continuity plan, in that we have three active live sites in the U.S. every day, on different power grids, subject to and isolated from different natural disasters and other challenges to business continuity. It also gives us a global reach. For example, more recently with all the concern around European credits, we have been able to reach out to Wells Capital investment staff in London.
MFI: Tell us about your investor base. Marcus: Overall our customer base has been very stable, and as a result we've managed to grow market share.... A large portion of our distribution is through Wells Fargo entities, ranging from retail to institutional. Some of our distribution partners use our money fund products in a sweep capacity, while others take a position-traded approach. I believe that our diversified client base helps with the stability of our balances. We have also focused on expanding our external relationships with portals and intermediaries. We clearly recognize the value of this distribution and fortunately we have also seen growth in this segment.
MFI: What would you like to see from regulators? Rabusch: In January of this year, we submitted a letter to the Securities and Exchange Commission providing comments on the recommendations proposed by the President's Working Group in October 2010. In that letter we provided an outline of a proposal for a capital buffer as a means of alleviating liquidity stresses on individual funds. We've maintained for some time now that allowing money market funds to set aside reserves on a voluntary basis to protect against future losses would be a viable option for reducing the risk to money market funds of runs.
Also, in May of this year we submitted a joint comment letter along with Fidelity and Charles Schwab to the SEC again expressing support for the idea of adding a NAV buffer to money market mutual funds. We believe a NAV buffer would provide enhanced resiliency and shareholder protection for the funds. As the conversation and debate over viable reforms continues, we've remained actively engaged with the Investment Company Institute and other industry firms in discussing potential solutions. Above all, prudent investment of client assets remains our top priority.
Sylvester: We believe that money fund investors see a number of benefits and advantages to investing in money funds. Money funds provide liquidity; they provide a diversification vehicle; they provide an element of professional management and scrutiny to their investments. The advantages and benefits will be there regardless of the particular form that that investment takes. We are confident that the shareholders are attracted by those benefits and advantages, and that they are going to continue to do so. So we are very confident in the future of the Industry. We think the industry will come together to meet the concerns of the regulators as they are further and better identified. Despite the near-term uncertainty, we think the outlook for the industry is very positive.
