Daily Links Archives: October, 2011

The Final Full Agenda has been set for January's 2nd annual Crane's Money Fund University. We've also recently added sponsors G.X. Clarke and Fidelity Investments. The updated agenda is now posted on the conference website (www.moneyfunduniversity.com); it includes new sessions on Fund Operations and The Board's Role, Regulations, Interpretations and Recent Changes. Crane's Money Fund University, an affordable and comprehensive two day, "basic training" course on money market mutual funds, will he held January 19-20, 2012, at The Hyatt Regency Boston. Last year's inaugural University attracted over 100 speakers, sponsors and attendees, and we expect even a stronger showing this coming year. MFU covers the history of money funds, interest rates, Rule 2a-7, ratings, rankings, money market instruments such as commercial paper and repo, and portfolio construction and credit analysis. (Click here for the full agenda.) New portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of "cash" investing should benefit from our comprehensive program. Even experienced professionals should enjoy a refresher course and the opportunity to interact with peers in an informal setting. Attendee registration for Crane's Money Fund University is $500. Exhibit space is $2,000 and sponsorship opportunities are $3K, $4.5K, and $5K. E-mail Pete to request the latest conference brochure. Also, our 4th annual Crane's Money Fund Symposium, Crane Data's larger flagship money market mutual fund event, is scheduled for June 20-22, 2012, in Pittsburgh, Pa. (Look for the preliminary agenda to be released soon on www.moneyfundsymposium.com.) Finally, we're also seeking feedback, speakers and sponsors for a European Money Fund Symposium, which is tentatively scheduled for September 2012.

Federated Investors, Inc. Reports Third Quarter 2011 Earnings says a statement released late yesterday. It says, "Federated Investors, Inc. (NYSE: FII), one of the nation's largest investment managers, today reported earnings per diluted share (EPS) of $0.37 for the quarter ended Sept. 30, 2011 compared to $0.42 for the same quarter last year.... Money market assets in both funds and separate accounts were $271.7 billion at Sept. 30, 2011, up $10.8 billion or 4 percent from $260.9 billion at Sept. 30, 2010 and up $6.0 billion or 2 percent from $265.7 billion at June 30, 2011. Money market mutual fund assets were $245.3 billion at Sept. 30, 2011, up $11.7 billion or 5 percent from $233.6 billion at Sept. 30, 2010 and up $9.2 billion or 4 percent from $236.1 billion at June 30, 2011.... Federated will host an earnings conference call at 9 a.m. Eastern on Oct. 28, 2011. Investors are invited to listen to Federated's earnings teleconference by calling 877-407-0782 (domestic) or 201-689-8567 (international) prior to the 9 a.m. start time. The call may also be accessed in real time on the Internet via the About Federated section of FederatedInvestors.com."

SEC Approves Confidential Private Fund Risk Reporting says a statement released yesterday. It explains, "The Securities and Exchange Commission today voted unanimously to adopt a new rule requiring certain advisers to hedge funds and other private funds to report information for use by the Financial Stability Oversight Council (FSOC) in monitoring risks to the U.S. financial system. The rule, which implements Sections 404 and 406 of the Dodd-Frank Act, requires SEC-registered investment advisers with at least $150 million in private fund assets under management to periodically file a new reporting form (Form PF). Information reported on Form PF will remain confidential." It adds, ""Large private fund advisers" are: Advisers with at least $1.5 billion in assets under management attributable to hedge funds. Liquidity fund advisers with at least $1 billion in combined assets under management attributable to liquidity funds and registered money market funds.... Large liquidity fund advisers must file Form PF to update information regarding the liquidity funds they manage within 15 days of the end of each fiscal quarter. These advisers must provide information on the types of assets in each of their liquidity fund’s portfolios, certain information relevant to the risk profile of the fund, and the extent to which the fund has a policy of complying with all or aspects of the Investment Company Act’s principal rule concerning registered money market funds (Rule 2a-7)."

A press release entitled, "Federated Investors, Inc. Announces Third Quarter 2011 Earnings and Conference Call Dates," says, "Federated Investors, Inc., one of the nation's largest investment managers, will report financial and operating results for the quarter ended Sept. 30, 2011 after the market closes on Thursday, Oct. 27, 2011. A conference call for investors and analysts will be held at 9 a.m. Eastern on Friday, Oct. 28, 2011. President and CEO J. Christopher Donahue and CFO Thomas R. Donahue will host the call. Investors interested in listening to the teleconference should dial 877-407-0782 (domestic) or 201-689-8567 (international) or visit FederatedInvestors.com for real-time Internet access. To listen via the Internet, go to the About Federated section of the website at least 15 minutes prior to register, download and install any necessary audio software. A telephone replay of the call will begin at approximately 12:30 p.m. Eastern on Oct. 28, 2011 and will be available through Nov. 4, 2011. To access the telephone replay, dial 877-660-6853 (domestic) or 201-612-7415 (international) and enter the access codes 286 and 380485. The Internet replay will be available via FederatedInvestors.com for seven days."

ICI's Paul Schott Stevens writes in "The Volcker Illusion: Why Bank Regulation Won't Work for Money Market Funds," "Today I submitted the following letter to the editor of the New York Times: Paul A. Volcker opposed the development of money market funds during his days as chairman of the Federal Reserve, and 30 years later he maintains his campaign of misinformation against these funds. His comments to Gretchen Morgenson ("How Mr. Volcker Would Fix It," October 22) represent another attempt to use the financial crisis -- a crisis rooted in banks and banking regulation—to deprive the economy of the enormous benefits that these funds bring investors, businesses, and governments.... Mr. Volcker's solution -- imposing bank-style regulation -- would wreak enormous damage by destroying money market funds without solving any problems. After all, the track record of banking regulation was exposed by Mr. Volcker himself, in a remark at the Securities and Exchange Commission's roundtable on money market funds this past May. Told that the U.S. had approximately 650 money market funds, Mr. Volcker said they should all be converted to banks. "This country could use 650 more banks," he said. "We just lost about 1,000 during the crisis."

The New York Times (Saturday) writes "How Mr. Volcker Would Fix It" in a column by Gretchen Morganson. She cites a recent Volcker speech and interview, saying, "One is the potential for problems in the huge industry of money market mutual funds, which operates "in the shadows of the banking system," he said. Although these funds are typically managed conservatively, he said, they are vulnerable to runs, as occurred when Lehman Brothers collapsed." It quotes Volcker, "Because they are not subject to reserve requirements and capital requirements, they are a point of vulnerability in the system. It is really interesting that they did so much lending to European banks. They had to pull back a lot, aggravating the pressures on the European banks." The Times adds, "Money market funds held $2.63 trillion as of last Wednesday, and, Mr. Volcker said, many people mistakenly think that these funds are as safe as bank accounts. But the safeguards on bank deposits -- strong bank capital requirements and federal deposit insurance, for example -- do not exist for most money market funds. There is also little official surveillance of the funds' investment practices [sic].... In a recent letter to the Financial Stability Board, an international organization charged with developing strong regulatory and supervisory policies for financial institutions, the Investment Company Institute said: "We do not believe banklike regulation is appropriate, necessary or workable for funds registered under the Investment Company Act of 1940." An alternative, Mr. Volcker said, would be to require money market funds to value their assets every day to reflect market fluctuations. This would put an end to the idea that if you put $1 into a money market fund you will always get $1 out, no matter what. "It seems to me if you are a mutual fund, you should act like a mutual fund instead of a pseudobank," he said." In other news, The Sunday Boston Globe also featured, "Investors fleeing money markets", which says, "Money market mutual funds, long one of the most dependable places for people to stash their cash, are losing their appeal."

ICI's latest "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets decreased by $1.98 billion to $2.634 trillion for the week ended Wednesday, October 19, the Investment Company Institute reported today. Taxable government funds increased by $90 million, taxable non-government funds decreased by $200 million, and tax-exempt funds decreased by $1.87 billion. Assets of retail money market funds decreased by $1.18 billion to $944.24 billion. Taxable government money market fund assets in the retail category decreased by $240 million to $198.43 billion, taxable non-government money market fund assets decreased by $970 million to $552.30 billion, and tax-exempt fund assets increased by $30 million to $193.51 billion.... Assets of institutional money market funds decreased by $810 million to $1.690 trillion. Among institutional funds, taxable government money market fund assets increased by $340 million to $690.86 billion, taxable non-government money market fund assets increased by $760 million to $904.16 billion, and tax-exempt fund assets decreased by $1.91 billion to $95.21 billion. ICI reports money market fund assets to the Federal Reserve each week. Revisions are due to data adjustments, reclassifications, and changes in the number of funds reporting. Historical weekly money market data back to January 2008 are available on the ICI website."

The Association for Financial Professionals, which was formerly known as the Treasury Management Association, will host its Annual Conference in Boston, on November 6-9. Dozens of money market mutual fund providers and portals will exhibit, and over 5,000 attendees, primarily corporate treasurers, financial professionals and bankers, will attend. There are several sessions involving money market mutual funds and cash investing, including: "Under the Cash Hood: Looking Beyond Yield at Money Market Mutual Fund Holdings" by Crane Data's Peter Crane and Genzyme's Coleman Nee, Jr.; "Evaluating Risk in Money Market Funds" with BofA Funds' Dale Albright; "The Role of Commercial Paper in Short Term Markets: An Essential Source of Financing and Investing" with JPMorgan's John Kodweis; and, "How to Conduct a Due Diligence Meeting with a Money Market Fund Complex" with Morgan Stanley's Michael Cha. Note that the full agenda is now posted and registration is open for Crane's Money Fund University, a "basic training" in money markets and money funds, which will take place January 19-20, 2012, at the Hyatt Regency in Boston.

A press release entitled, "Money-Market Fund Creator Bruce R. Bent to Be Honored as Visionary of Mutual Fund Industry," says, "Bruce R. Bent, creator of the world's first money-market fund in 1969 along with partner Henry B.R. "Harry" Brown, will be honored by luminaries of the financial world at the Strategic Insight 25th Anniversary Gala Dinner on November 7, 2011. Honorees were selected by Strategic Insight's "Visionaries" Advisory Board. Mr. Bent will be recognized as one of the "Visionaries of the Modern Era of the Mutual Fund Industry." The release quotes Crane Data's Peter Crane, "Bruce Bent's invention of the money-market mutual fund stands as one of the most important developments in the history of mutual funds. Not only have money-market funds, now at $2.6 trillion in assets, earned investors over $1 trillion in interest income over their 40-year lifetime--hundreds of billions more than they likely would have earned in banks; they've also substantially lowered financing costs to corporations, municipalities and the U.S. government. Mr. Bent truly deserves Strategic Insight's title of 'Visionary."

The Wall Street Journal writes "Hidden Dangers Lurking In Money-Market Funds". It says, "It's always the quiet ones. Money-market funds -- U.S. mutual funds that buy short-term debt issued by companies, banks and governments -- are supposed to be safe, cash-like investments that lead an inconspicuous life in the lower reaches of the financial system. In normal times, these funds, which collectively have more than $2.5 trillion under management, should be stored away in the drawer marked "BBB" -- "Big But Boring" -- and forgotten. But times have been anything but normal in recent years. Cue a whirlwind of regulatory activity, led by the Securities and Exchange Commission, that could fundamentally change the nature of this huge sector, and not a minute too soon. The issue is simple-yet-frightening: Money-market funds have become "systemic" institutions, whose size, interconnectedness and behavior have the potential to cause serious damage to companies, investors and the economy.... Industry representatives point out, with some reason, that only two funds have ever broken the buck, adding that, since the outset of the euro-crisis, the sector has steadily reduced holdings of European bank debt. Indeed, the much-scrutinized French banks no longer feature among the top 10 borrowers from U.S mutual funds, according to the latest figures from Crane Data. That is reassuring news but not reassuring enough to ease the regulatory pressure."

A press release entitled, "Bloomberg First to Connect All Repo Agencies & Meet Fed Reforms," says, "Investors in the U.S. tri-party securities repurchase (repo) market can now use Bloomberg technology to match and confirm repo trades with both clearing banks, Bank of New York Mellon (BNY) and JP Morgan. Bloomberg's fixed income group announces the first agency-neutral platform that allows investors to process and confirm repo trades with either clearing bank as mandated by the Federal Reserve Bank of New York (The Fed)." Another release entitled, "J.P. Morgan Announces Successful Transition to Three-Way Trade Confirmation for Tri-Party Repo Clients," says, "J.P. Morgan today announced that its active tri-party repo clients have successfully completed the transition to three-way trade confirmation as mandated by the Tri-Party Repo Market Infrastructure Reform Task Force. By value, 99% of all tri-party repos booked daily through J.P. Morgan are now confirmed by both counterparties."

ICI's latest weekly "Money Market Mutual Fund Assets" report says, "Total money market mutual fund assets decreased by $2.95 billion to $2.636 trillion for the week ended Wednesday, October 12, the Investment Company Institute reported today. Taxable government funds decreased by $3.07 billion, taxable non-government funds increased by $360 million, and tax-exempt funds decreased by $240 million. Assets of retail money market funds increased by $3.21 billion to $945.35 billion. Taxable government money market fund assets in the retail category increased by $1.36 billion to $198.65 billion, taxable non-government money market fund assets increased by $1.54 billion to $553.23 billion, and tax-exempt fund assets increased by $310 million to $193.47 billion.... Assets of institutional money market funds decreased by $6.16 billion to $1.691 trillion. Among institutional funds, taxable government money market fund assets decreased by $4.43 billion to $690.54 billion, taxable non-government money market fund assets decreased by $1.17 billion to $903.42 billion, and tax-exempt fund assets decreased by $550 million to $97.13 billion." Money fund assets remain at almost the same level they were at on August 31, but they are down by $174 billion year-to-date (-6.2%)."

Treasury Strategies sent out a press realease entitled, "Record UK & Eurozone Corporate Cash is not the Result of Systematic Hoarding". It says, "Treasury Strategies, a treasury consulting firm, recently reported that UK and Eurozone corporate cash levels had been rising strongly for nearly a decade. This report throws into question recent contentions that corporations have been hoarding cash since the financial crisis and contributing to delayed economic recovery.... Treasury Strategies analysis shows that corporate cash and GDP across the region rose almost in lockstep. However, in 2002 there was a dramatic shift that caused cash levels to grow more steeply than GDP for much of the ensuing decade. Today, corporate cash stands at L780 billion in the UK, and E1.95 trillion in the Eurozone.... The firm has several hypotheses regarding the broken link.... [O]ne cause might be an increase of "trapped cash," which companies headquartered outside the region chose to not repatriate for tax or regulatory reasons. Another possibility is that financial executives have changed their view of prudent cash levels in a world of heightened unpredictability."

Reuters writes "Executives Doubt U.S. Support on Money Fund Plan". The article says, "U.S. regulators are not likely to adopt a high-profile plan to protect money market mutual funds with an emergency liquidity facility, top fund company executives said. Major U.S. fund companies in January had proposed creating the liquidity facility to backstop the $2.6 trillion money fund industry during times of stress. The facility would have been funded with fees on fund sponsors. But that plan now seems to have little support, said Gregory Johnson, new chairman of industry trade group The Investment Company Institute, in an interview late on Monday.... Johnson and other company leaders acknowledged regulators have expressed doubts about the industry liquidity facility plan, including whether the funds could build capital quickly enough when interest rates are low. Johnson said the changes the SEC has already made are probably enough to stabilize the funds, but said regulators may still seek more new rules. Currently, he said, "Everything is on the table.""


Wells Fargo writes "Low rates have us down" in its latest "Portfolio Manager Commentary. Dave Sylvester says, "The tone in the money markets turned increasingly negative in September. This might have as much to do with the quality and volume of information as its content. This month, we explore possible causes for the continuing negative sentiment and discuss some recent activity by the rating agencies. We also look at the underlying trend in credit quality and some factors to consider when evaluating credit quality.... The ultra-low rates are wearing market participants down, as some question whether or not they are getting paid enough for the admittedly minor credit and settlement risks involved in money market transactions. The attention given to the possibility that the Federal Reserve (Fed) might cut the interest paid to banks on their excess reserves reflects the anxiety in the markets, as investors face the possibility of another couple of years of a near zero interest rate policy. The idea of the central bank forcing rates from zero to negative was like adding insult to injury. Money market participants had to wonder if the Fed really believed there were hordes of potential borrowers just waiting in the wings, if only rates would drop a few more basis points!"

A press release entitled, "BlackRock to Report Third Quarter 2011 Earnings on October 19th," says, "BlackRock, Inc "announced that it will report results for the third quarter of 2011 prior to the opening of the New York Stock Exchange on Wednesday, October 19, 2011. Chairman and Chief Executive Officer, Laurence D. Fink, and Chief Financial Officer, Ann Marie Petach, will host a teleconference call for investors and analysts at 9:00 a.m. (Eastern Time). BlackRock's third quarter earnings release will be available in the investor relations section of the Company's website, www.blackrock.com, before the teleconference call begins. Members of the public who are interested in participating in the teleconference should dial, from the United States, (800) 374-0176, or from outside the United States, (706) 679-4634, shortly before 9:00 a.m. and reference the BlackRock Conference Call (ID Number 16433328)."

ICI's weekly "Money Market Mutual Fund Assets" report says, "Total money market mutual fund assets increased by $4.87 billion to $2.639 trillion for the week ended Wednesday, October 5, the Investment Company Institute reported today. Taxable government funds increased by $10.77 billion, taxable non-government funds decreased by $9.12 billion, and tax-exempt funds increased by $3.22 billion." Year-to-date, money market mutual fund assets have decreased by $171 billion, or 6.1%. Institutional assets have declined by $167 billion (9.0%) while Retail assets have declined by just $2 billion (0.2%).

S&P rates new fund HSBC Euro Government Liquidity Fund 'AAAm' says a press release from the ratings agency. It states, "Standard & Poor's Ratings Services said today that it assigned its highest principal stability fund rating of 'AAAm' to HSBC Euro Government Liquidity Fund, a money market subfund of the Irish-domiciled umbrella fund, HSBC Global Liquidity Funds PLC. The assigning of this rating coincides with the launch of the subfund today. The rating is based on Standard & Poor's analysis of the subfund's credit quality, liquidity, market price exposure, and management. HSBC Global Asset Management (UK) Ltd., promoter of the HSBC Euro Government Liquidity Fund, has established this very conservative vehicle to further enhance its offshore money market fund range with a Euro-denominated government money market fund. According to its prospectus, the new subfund aims to provide investors, in particular institutional and professional clients, with security of capital and daily liquidity together with an investment return comparable to normal short-dated Euro denominated government returns. The assigned "AAAm" rating reflects our view of the subfund's extremely strong capacity to maintain principal stability and limit exposure to principal losses due to credit risk. The subfund is managed by an experienced team of investment professionals at Paris-based HSBC Global Asset Management (France)." Crane Data will add the new fund to its Money Fund Intelligence International, which tracks "offshore" money funds (which are not available to U.S. investors) once the fund begins reporting a 7-day yield. HSBC is the fifth largest manager of "offshore" money market funds with over $44 billion in USD, Euro and Sterling assets according to MFII.

A press release entitled, "PFM Funds Government Series Receives a "AAAmmf" Rating From Fitch," says, "PFM Asset Management LLC (PFMAM) today announced that Fitch Ratings has assigned a 'AAAmmf' rating to the PFM Funds Government Series. In a statement issued by Fitch, the rating agency said that their 'AAAmmf' money market fund rating reflects the Fund's extremely strong capacity to achieve the investment objective of providing shareholders with high current income consistent with stability, safety of principal and liquidity in order to maintain a stable net asset value (NAV) of $1.00 per share." (Note that Crane Data does not track the PFM Funds due to a lack of publicly posted performance information.)

WSJ writes "Dexia Shares Tumble on Break-Up Fears". It says, "Dexia SA's shares fell sharply for a second-straight day Tuesday, as France and Belgium's finance ministers said they will support the troubled bank amid signs that it could be split up. In a joint statement, French finance minister Francois Baroin and Belgian finance minister Didier Reynders said the two governments stand behind the bank's customers and creditors as they raise their commitment to shore up the struggling bank, the countries' finance ministers said Tuesday. "Regarding Dexia's restructuring, the French and Belgian states, in coordination with the central banks, will take all the necessary measures to safeguard the bank's depositors and creditors," French finance minister Francois Baroin and Belgian finance minister Didier Reynders said in a statement. "To this end, they commit to bringing their guarantee to funds raised by Dexia," the ministers said. The French-Belgian bank said in a statement after midnight Monday that the bank's large portfolio of legacy assets is hampering it structurally, following a five-hour emergency meeting Monday evening." Note that Crane Data only found a single holding of Dexia in its August 31 Money Fund Portfolio Holdings collection (which matured in mid-September, so no direct exposure is held by money funds. Dexia does appear as the provider or guarantor in a number of tax-exempt securities though, but many times this support is not listed in the municipal holdings (it is listed in some though). (See Dexia's latest statement here.)

The European money market mutual fund community is preparing for its biggest investor show of the year, Eurofinance's International Cash and Treasury Management, which will be held 12–14 October 2011 in Rome, Italy. (Alas, Crane Data won't make it over! Our International product line is still young.) The major providers of Dublin and Luxembourg-based money market funds will be exhibiting, and several money fund trading "portals" should be in attendance. The vent attracts thousands of corporate treasurers, but the "cash" content in the program is relatively limited. The only talk we noticed was: "Who's going to put your cash to work for you? by David Stebbings, Director, Head of Treasury Advisory, PwC, UK.

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