Today, we excerpt from our latest fund family "profile", "New Queen of Cash: Fidelity's Nancy Prior." The June issue of Money Fund Intelligence interviews Fidelity's Money Market Group President Nancy Prior this month, asking her about ultra-low rates, regulatory reform, and recent challenges. We also touch on the largest money fund provider's venerable history, customer concerns and some other issues in the money market mutual fund space. Our Q&A follows.

Q: Tell us about Fidelity's history, and your history, in the money fund space. Prior: Fidelity has been in the money market fund business for several decades. It is a very important business to us.... Money market funds represent a significant amount of Fidelity's assets under management. We have been at the forefront of innovation in the money market space, whether it be check writing or other features. So Fidelity has a very long and proud history in the money market fund business. I have been with Fidelity just over 10 years now and all of that time has been with the fixed income division. I actually started my career at Fidelity back in 2002, as part of the fixed income legal team. In 2009, I became managing director of research and was responsible for all credit research related to global financial institutions.... [I]n November of 2011, I became the President of our money market group.

Q: What would you consider to be Fidelity's main differentiator in the space? Prior: We have a common set of goals, and a money market fund investment mandate that is crystal clear in all of our minds, which is to give our shareholders a one dollar stable NAV, liquidity and a market-based rate of return. We are very focused on credit research. We have over 80 analysts that are dedicated to working with our traders and portfolio managers constructing appropriate portfolios. We take our obligations under Rule 2a-7 for making minimal credit risk determinations very seriously and have resourced our credit research department accordingly. We monitor every single dollar, every hour. Having people on the ground in the right time zone, and developing relationships with issuers' management teams and local regulators is very important. We have a group of analysts that are responsible for different jurisdictions throughout Europe. They can hop on a plane or a train and be in Germany, Brussels or France in an hour, and that is very valuable.

One other significant differentiator is the incorporation of macro analysis in our process. Historically, looking at financial institutions and other issuers, the key focus of the analysis was always on the fundamental strength of an individual issuer. What are their assets? Who is their management team? What is their funding profile? What is the quality of their assets? It was really focused on an individual issuer and basing minimal credit risk determinations on the fundamental strength of that issuer. Clearly over the last few years, the balance in terms of the weight that macro analysis plays in credit analysis for an individual issuer has changed. With that balance now shifted, a good portion of what we choose to invest in is driven by macro analysis. We always will start with the questions: 'Does an issuer represent minimal credit risk? What is the fundamental strength of an individual issuer?' But the macro overlay today is far "weightier" than it was in the past.

Q: What is your biggest challenge now? Prior: I think it has been dealing with the markets. We continue to be in a low rate environment with lots of volatility and uncertainty. As money market fund investors, that situation dictates that we continue to invest very conservatively. The rate environment and volatility are what we focus in on every day, making sure that we carefully review and consider everything we own. One of our mantras here is 'Know what we own it and why we own it.' We focus everyday on how events might impact those decisions. We are also looking at some of the bank ratings issues that are approaching. You've got Moody's looking at global banks and how potential ratings changes may affect some of largest financial institutions in the world. Between uncertainty and potential downgrades in Europe and here in the States, our investable universe continues to become smaller. We have partially responded to that trend by increasing our allocations to U.S. government securities and overnight repos.

Q: What are the funds buying and what aren't they buying now? Prior: We generally don't comment on specific securities, but I can tell you that we have a process that includes an "approved" list. For each issuer there is a dedicated analyst, because we believe in front line accountability. We invest only in banks and other corporations that we believe represent minimal credit risk. Our maturity limits for many of those institutions have been shortened, primarily in response to larger macro issues. We are investing quite conservatively and defensively.

Q: What are customers concerned about? Prior: There are still concerns over Europe, though certainly not to the extent that we saw last summer. We tend to be very proactve in our shareholder relationships. We have a great client relationship team that reaches out to clients to learn what is on their minds and to make sure that they understand our philosophy and current thinking. I think the new holdings disclosures that are available to clients, combined with our proactive client outreach have done quite a bit to ease customers' concerns. We know that our customers are focused on many of the same things we are focused on, which includes the low rate environment, and credit market volatility, particularly in Europe. We have been proactive in communicating to our clients that we are not invested in Greece, Portugal, Ireland, Spain or Italy.

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