The Investment Company Institute released both its November monthly "​Trends in Mutual Fund Investing" and its weekly "​Money Market Mutual Fund Assets" yesterday afternoon. The monthly numbers show money fund assets declining by $​43.​4 billion to $​3.​318 trillion in November while the weekly numbers show money fund assets increasing by $​21.​7 billion to $​3.​294 trillion in the week ended Dec. 29. The weekly jump was driven by institutional investors, likely fleeing negative yields in direct Treasuries for the higher-​yields of Government money funds. Through November YTD, money fund assets have declined by $​514.​4 billion, or 13.​4%. This contrasts with bond fund assets, which have increased by $​620.​8 billion, or 39.​6%, to $​2.​187 trillion, and with stock fund assets, which have increased by $​1.​12 trillion, or 30.​2%, to $​4.​825 trillion. Year-​to-​date through Dec. 29, money fund assets have declined by $​536 billion, or 14.​0%. Retail money funds have declined YTD in 2009 by $​287 billion, or 21.​1%, to $​1.​068 trillion, while Institutional money funds have declined by $​260 billion, or 10.​5%, to $​2.​225 trillion. Liquid assets of stock funds continue to remain near record lows at 3.​8% of assets. Money market funds are on track for their largest asset decline, and their second-​largest percentage decline, in their 40-​year history. In other news, see Nightly Business Report'​s "​Money File - Value in Money Market Funds" and US News' "​The Decade'​s 10 Worst Fund Disasters".

Investment News writes The Reserve takes another step to repair rep. It says, "Even as it prepares to repay investors in the Reserve Primary Fund, the largest and most prominent money market fund that '​broke the buck' more than a year ago, the Reserve Management Co. has taken another step toward making investors in one of its other funds whole. Reserve Management said Monday it will '​as soon as practicable' return $​43 million to investors in its Reserve Yield Plus Fund, the fourth distribution it has made so far to investors who suffered losses last year. That amount represents about half of the Yield Plus'​s current assets of $​85.​5 million, including the now-​worthless share of Lehman Brothers Holdings securities." It adds, "Regardless of the uncertainty of the timing -- and the slowness of process overall -- every announcement like yesterday'​s is a step in the right direction, said Peter Crane, president and chief executive of Crane Data, LLC." Crane says, "Every penny counts. The Reserve Yield Plus Fund has been a thorn in [​The Reserve'​s] side, too. Putting this episode behind them is going to help repair the reputation of The Reserve, money funds, ultra short bond funds and asset managers in general."

Eaton Vance Money Market Fund and Cash Management Fund filed a prospectus supplement to switch from "​Prime" to Government money funds. It says, "On October 19, 2009, the Boards of Trustees of each Fund and Cash Management Portfolio, approved a change to the investment policies of each Fund and the Portfolio to provide that each will invest substantially all of its net assets in obligations of the U.​S. Government and its agencies and instrumentalities. Implementation of this change is expected to be completed on or about March 1, 2010. In connection with the policy change, Eaton Vance Cash Management Fund will change its name to Eaton Vance U.​S. Government Money Market Fund and the Portfolio will change its name to U.​S. Government Money Market Portfolio. In addition, the Trustees approved the reorganization of Eaton Vance Money Market Fund into Class B shares of Eaton Vance Cash Management Fund. The reorganization is expected to be consummated on or about March 1, 2010." See also USA Today'​s "​Savings rates change fast, but they don'​t go far".

Saturday'​s Wall Street Journal writes "​A Permanent Backstop Would Be Permanent Pain", which says, "​Imagine your delight if the government was suddenly prepared to guarantee all your debts. That'​s more or less what U.​S. politicians are offering banks in legislation designed to fix the financial sector. That lawmakers are pushing a debt backstop, despite the moral-​hazard risk, reveals their concerns about the ability of banks to borrow through an economic downturn. That'​s understandable. In the latest crisis, many firms could have failed without the Federal Reserve'​s emergency credit lines and the Federal Deposit Insurance Corp.'​s Temporary Liquidity Guarantee Program, or TLGP." It adds, "​The details of the backstop beggar belief. The bill passed by the House says that if a '​liquidity event' occurs that could '​destabilize the financial system,' regulators and the Treasury can widely offer the guarantee. The bill stipulates that the guarantee can only go to '​solvent' institutions, but its definition of solvency -- having more assets than obligations to creditors -- could let just about anyone in." We'​re unsure what exactly the House legislation says (​and what the final legislation will say), but we expect the President'​s Working Group report to weigh in on the topic of a backstop too any day now too.

ICI Reports Money Market Mutual Fund Assets. The weekly report (​released a day early due to the Holiday) says, "Total money market mutual fund assets increased by $​2.​59 billion to $​3.​272 trillion for the week ended Tuesday, December 22." In other news, Moody'​s Investors Service "confirmed the Aaa fund rating assigned to Neuberger Berman Tax-​Free Money Fund managed by Neuberger Berman LLC and subadvised by its affiliate, Neuberger Berman Fixed Income LLC. The fund'​s credit quality and liquidity are both strong and there is limited exposure to interest rate risk, consistent with a rating of Aaa." Also, Standard & Poor'​s Ratings Services said "it affirmed its '​AAAm' principal stability fund ratings and '​AAAf' fund credit ratings on the British pound sterling share classes, euro share classes, and U.​S. dollar share classes subfunds of the Dublin-​domiciled umbrella fund BlackRock Cash Selection Funds PLC, following a review of management and the investment policy of the rated subfunds."

More postings were listed recently on the SEC'​s "​Comments on Proposed Rule: Money Market Fund Reform" website. These include a Dec. 18 meeting of Federated with Commissioner Walter and a Dec. 15 Goldman Sachs meeting with the Office of the Chairman. The Federated posting says, "On December 18, 2009, Commissioner Walter, along with Christian Broadbent and Brian Murphy of Commissioner Walter'​s office, met regarding the above-​referenced proposal with John McGonigle and Deborah Cunningham of Federated, and Stephen Keen of Reed Smith." The latest Goldman letter says, "On December 15, 2009, Timothy O'​Neill, James McNamara, James McCarthy, David Fishman and Peter Bonanno of Goldman Sachs and Annette Nazareth of Davis Polk & Wardwell LLP met with the following SEC representatives: Mary L. Schapiro, Chairman; Andrew J. Donohue, Director, Division of Investment Management; and Jennifer B. McHugh, Senior Advisor to the Chairman.... In particular, the Goldman Sachs representatives discussed their support for prohibiting money market funds from acquiring second-​tier securities; the practical challenges of redeeming large shareholders in-​kind rather than in cash; the impact of proposals to differentiate institutional from retail money market funds; their objection to floating net asset values and disclosure of shadow net asset values; and their support of weighted average life restrictions.

USA Today writes "​Investors cash out of money funds in droves". It says, "Investors are yanking money out of money funds and moving to bond funds -- but some are just cashing out. Investors pulled a net $​490 billion from money funds this year through October, according to the Investment Company Institute, the funds' trade group. A record-​shattering $​313 billion went to bond funds. And $​1.​9 billion fled stock funds." USA Today quotes Vincent Deluard of TrimTabs.​com, "More money is flowing out of money funds than is going into bond funds -- something that'​s only happened twice in 26 years. It shows how deep the recession is: They may be taking money out to pay the bills or the mortgage." In other news, see AP'​s "​With rates so low, where should you put your cash?".

Cash-​sweep pioneer DoubleRock Corporation recently issued a press release, "Reich & Tang Asset Management, LLC Selects Liquid Insured Deposits for Its Expanded FDIC-​Protected Solution," which says, "LIDs Capital LLC announced today that it and Reich & Tang Asset Management, LLC, an asset manager providing money fund and cash management services to financial firms, have entered into a license agreement to offer Liquid Insured Deposits, the brokerage industry'​s first expanded FDIC sweep. Investors who participate in the program will be able to receive up to $​2.​5 million of FDIC protection while maintaining 100% liquidity with their cash." Michael Lydon, President & CEO of Reich & Tang Asset Management, says, "We are pleased to add an FDIC deposit solution to our current offering of cash management services. The flexibility of the Liquid Insured Deposits program is what initially attracted us, and now we are pleased to be implementing a robust program from which all of our all clients can benefit.... Our clients are seeking the safety of FDIC insurance for their customers while maintaining 100% daily liquidity." John Drahzal, Managing Director, LIDs Capital, adds, "​The addition of Reich & Tang to the Liquid Insured Deposits growing list of clients is outstanding. Reich & Tang has a long history of providing superior cash management programs to their clients. Adding Liquid Insured Deposits to their list of offerings underscores their commitment to addressing the most pressing concerns facing investors and savers today."

Another notice was recently posted on the SEC'​s "​Comments on Proposed Rule: Money Market Fund Reform. It is entitled, "Memorandum from the Office of Commissioner Paredes regarding a December 15, 2009, meeting with representatives of Goldman Sachs," which describes a recent meeting with an SEC Commissioner. The notice says, "On December 15, 2009, Commissioner Troy A. Paredes and Scott H. Kimpel, Counsel to the Commissioner, met with the Honorable Annette Nazareth, Davis Polk & Wardwell LLP and the following representatives of Goldman Sachs: Tim O'​Neill, Jim McCarthy, Jim McNamara, Dave Fishman, and Peter Bonanno. The participants discussed the Commission'​s proposed rules on money market fund reform." In other news, there was a tidbit on money funds buried in yesterday'​s Wall Street Journal story, "​SEC Tackles Pay Linked to Risk". The WSJ said, "​The rules address two of the biggest issues the SEC has faced in the past year: the Madoff fraud and the financial crisis. That leaves a number of other proposed rules that won'​t be enacted until next year at the earliest. Those include some contentious issues, such as setting up speed bumps to slow short-​selling, making it easier for shareholders to nominate directors on corporate ballots, and reducing the risk and volatility of money-​market mutual funds."

"​Primary dealers ask Fed for breakable repos" writes Reuters. The article says, "​Since the Fed began testing reverse repos with primary dealers this fall, a handful of the 18 banks that help the central bank carry out its open market operations have recently suggested that so-​called reverse repurchase agreements should be '​breakable.' Barclays, for one, told the Fed the tool would be more effective if money market funds had the option to quickly unwind these agreements -- in which assets are temporarily transferred from the Fed to market participants in exchange for cash -- in an emergency. Money market funds, flush with cash, are a logical addition to the primary dealers as potential reverse repo counterparties for the Fed, capital markets professionals say. Money market funds could either conduct the repos through primary dealers or forge the agreements directly with the Fed." Reuters quotes Barclays Capital'​s Joe Abate, "We had recommended breakable repos in the context of repos being expanded to include money market funds. We felt this was an important safeguard in the event money funds face significant redemptions in the future and need to be able to exit a repo transaction and get their cash back."

Schwab'​s Latest Monthly Activity Highlights says, "In the meantime, continued declines in the rate environment have led to heightened revenue pressures during the fourth quarter -- we currently believe that management fee waivers on our proprietary money market mutual funds could increase by approximately $​30 million over the third quarter total of $​78 million -- and client trading volumes have slowed in recent weeks." Bloomberg quotes FBR Capital Markets Corp. Analyst Matt Snowling in its article, "Charles Schwab Drops After Forecast Misses Estimates," "Schwab'​s been facing some pretty big headwinds in terms of the impact of lower rates. Because Schwab'​s such a giant manager of money-​market funds and given the lower interest rate environment, they'​ve gotten hit a lot harder than other managers."

The Financial Times writes "​New rules for [​European] money funds", which says, "Europe'​s E430bn (​L388bn, $​630bn) triple-​A money market fund industry will have to abide by higher standards of maturity, credit quality, liquidity and disclosure under new guidelines due to be unveiled today. The move follows a series of problems in the supposedly low risk asset class during the credit crisis. A number of '​enhanced' European money market funds suffered double-​digit losses and the US Treasury felt compelled to prop up its domestic industry after one vehicle, the Reserve Primary Fund, '​broke the buck', losing money for investors." FT adds, "Although triple-​A rated European funds avoided these problems the industry body, the Institutional Money Market Funds Association, has still decided to tighten its guidelines, which are mandatory for members. The move mirrors tighter rules being consulted on by the Committee of European Securities Regulators. Funds will now have to manage liquidity by ensuring at least 5 per cent of assets are held in overnight securities and 20 per cent in securities maturing within one week.... IMMFA has also moved to tighten up credit quality by stipulating that the weighted average final maturity of a fund'​s assets must be no more than 120 days." The London-​based IMMFA will be hosting a conference call to unveil its new Code of Practice, "​a set of best practice standards for the management and operation of triple-​A money market funds in Europe," on Monday morning at 5am Eastern (​10am London).

TheStreet.​com writes "​Federated Faces Money Market Fears". It says, "Federated Investors shares have struggled of late, and at least two analysts blame the threat of tough new rules affecting money market funds, which they say are overblown. Stricter rules on money market funds would be bad news for a wide range of companies, including BlackRock, Invesco, and Legg Mason, says Michael Kim, analyst at Sandler O'​Neill. JPMorgan Chase and Vanguard also have giant money market funds. However, Federated'​s exposure to the money market business is more concentrated, accounting for 67% of its revenues so far in 2009." Also, see Reuters' "​Short-​debt funds alternative to money market".

The Association for Financial Professionals, which holds the largest treasury conference in the country, is looking for speakers for its annual conference, which will be held in San Antonio, November 7-​10, 2010. It'​s notice, "Call for Proposals for 2010 AFP Conference," says, "Share your thought leadership with thousands of corporate treasury and finance professionals -- apply now to lead an educational session or workshop at the 2010 Association for Financial Professionals Annual Conference in San Antonio, TX, November 7-​10.... AFP'​s Annual Conference is the most important event in corporate treasury and finance. More than 4,​000 CFOs, VPs of finance, controllers, treasurers, assistant treasurers, finance directors, cash managers, financial analysts, service providers, bankers and product managers attend over 100 sessions and workshops." Crane Data is also looking to fill a couple remaining speaker slots for its 2010 Crane'​s Money Fund Symposium, which will be held July 26-​28, at The InterContinental Boston. Contact Pete Crane to suggest a topic and watch http://​www.​kinsleymeetings.​com/​crane for the preliminary agenda and more details in coming weeks.

Wells Fargo says in its latest "Overview, Strategy, and Outlook, as of November 30, 2009," "The main themes in the money markets did not change in November: low rates, contracting supply, and a conflict between issuers' desire to fund long-​term and the need of money funds and other market participants to invest short-​term. Throw an unexpected credit concern into the mix, and that pretty much sums up the month.... The money markets continue to be plagued by a persistent zero or near-​zero interest rate environment.... Although balances in money market funds have been contracting this year, at $​3.​2 trillion they are still very sizeable and exceed their 2007 pre-​credit crisis levels by a considerable amount. Based on asset flows, money fund investors continue to move from government and Treasury funds to prime funds and, at least in retail funds, from prime funds to longer-​term investments." The piece, written by Portfolio Manager David Sylvester, adds, "Finally, what would the markets be anymore without a good credit scare thrown into the mix? On the day before Thanksgiving, Dubai shocked the markets with an announcement that it would seek to defer payments on a portion of the $​59 billion in debt issued by Dubai World (​DW) that is maturing in the near future.... Initially there was little information available, but it appears that there will be no direct impact on money market funds."

Last week, representatives of the Investment Company Institute had another meeting with the Securities and Exchange Commission to discuss the SEC'​s Money Market Reform Proposals. A statement entitled, "Memorandum from the Office of the Chairman regarding a December 1, 2009, meeting with representatives of the Investment Company Institute," says, "​On December 1, 2009, representatives from the ICI and its members met with the following SEC representatives: Mary L. Schapiro, Chairman; Andrew J. Donohue, Director, Division of Investment Management; and Jennifer B. McHugh, Senior Advisor to the Chairman. Attending from the ICI and its members were Paul Stevens and Karrie McMillan of the ICI; George Gatch of JPMorgan Asset Management; John McGonigle of Federated Investors; Jack Brennan of Vanguard; Marty Flanagan of Invesco; and Jaques Perold of Fidelity. The ICI representatives discussed the proposals regarding money market fund reform contained in SEC Release No. IC-​28807 and expressed their general support for the proposals. The ICI representatives also discussed their lack of support for idea of floating net asset values for money market funds." The final version of the SEC'​s proposals are expected in the first quarter of 2010, according to the December Money Fund Intelligence. The full Comments on Proposed Rule: Money Market Fund Reform may be seen here.

Money magazine says "​Hang on to your down payment money". Senior editor Walter Updegrave answers a question about what to do with house downpayment cash, "Let me be clear about this: Any money you'​re absolutely, positively going to need within the next two years -- whether to buy a house, pay college tuition, start a business, serve as an emergency reserve, whatever -- should not be invested in the stock market. Period." He adds, "​Basically, cash equivalents where your principal isn'​t at risk. That pretty much means money-​market funds, money-​market accounts ... and short-​term CDs (​those with maturities of say, one-​year or less)."

Sunday'​s Financial Times features "​Paul Stevens: Mutual funds industry defender", which interviews Investment Company Institute President & CEO Paul Schott Stevens (​via print and video). The article says, "He also defends the money market mutual fund sector, which suffered reputational damage when the Reserve Primary Fund '​broke the buck' after Lehman Brothers went bust. He says the real problems were suffered by other less regulated cash vehicles. These were not complying with rules that funds committed to maintaining a stable price must follow and '​got into trouble because they were chasing yield'. Reserve fund shareholders will get back $​0.​99 in the dollar, which when added to the yield they have collected makes them more than whole, he says. But lessons have been learned, and Mr Stevens is '​very proud' that recommendations put forward by the ICI on how to make money funds more resilient were influential in a package of proposals recently put forward by the Securities and Exchange Commission."

ICI'​s weekly "​Money Market Mutual Fund Assets" says, "Total money market mutual fund assets decreased by $​8.​36 billion to $​3.​319 trillion for the week ended Wednesday, December 2.... Taxable government funds decreased by $​9.​35 billion, taxable non-​government funds decreased by $​950 million, and tax-​exempt funds increased by $​1.​94 billion.... Assets of retail money market funds decreased by $​3.​97 billion to $​1.​078 trillion.... Assets of institutional money market funds decreased by $​4.​39 billion to $​2.​242 trillion." Year-​to-​date, money fund assets have declined by $​511 billion, or 13.​3%, while over 52 weeks they'​ve declined by $​424 billion, or 11.​9%. Retail assets have declined by 20.​5% ($​277 billion) while Institutional assets have declined by 9.​8% ($​244 billion). Look for Crane Data'​s forecast for 2010 money fund asset growth in the December issue of Money Fund Intelligence, which goes out to subscribers on Monday morning.

SVB Financial Group writes "​No Risk vs. Know Risk" in its largest "Observation Deck newsletter. President Adam Dean writes, "​Uncertainty in capital markets has made some firms (​and boards) opt to forbid investing any of their precious cash in securities that have credit risk. Even fixed-​income issuers and money funds with well-​understood and transparent risk profiles, both before and after the credit crisis, have been categorized by some as unacceptable or '​unknowable' risks as a result. With government money funds, short-​term treasury and government-​backed agencies perilously close to zero yield now and in the near future, the time has come to reassess that approach.... Instead of saying '​no risk,' we argue that the better approach going forward is to actually know your risk." Dean says to, "Utilize a credit research team focused solely on corporate cash," and that, "A credit team'​s job doesn'​t end at money funds." In other news, see "Transamerica Asset Management Group Launches New Institutional Share Class"."

The New York Federal Reserve'​s "​Statement Regarding Reverse Repurchase Agreements" says, "​As noted in the October 19, 2009 Statement Regarding Reverse Repurchase Agreements, the Federal Reserve Bank of New York has been working internally and with market participants on operational aspects of triparty reverse repurchase agreements to ensure that this tool will be ready if the Federal Open Market Committee decides it should be used. In the coming weeks, as an extension of this work, the Federal Reserve Bank of New York plans to conduct a series of small-​scale, real-​value transactions with primary dealers. Like the earlier rounds of testing, this work is a matter of prudent advance planning by the Federal Reserve. It does not represent any change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future." The NY Fed adds, "These forthcoming operations are being conducted to ensure operational readiness at the Federal Reserve, the triparty repo clearing banks, and the primary dealers. The operations have been designed to have no material impact on the availability of reserves or on market rates. Specifically, the aggregate amount of outstanding transactions will be very small relative to the level of excess reserves, and the transactions will be conducted at current market rates." See also, Bond Buyer'​s "​Cash Could Be Migrating Out of Safe Havens at a Slower Pace".

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