News Archives: December, 2007

Janus, Morgan Stanley, BGI, CS, Lehman, Putnam Top Ranked in '07. Crane Data's preliminary rankings for 2007 show that Janus Institutional Cash Management Inst will rank No. 1 among all taxable money market funds for calendar 2007 with a return of 5.35%. Morgan Stanley Inst Liquidity MMP Inst should place a close second with a 5.34% return, and four funds -- Barclays Inst MMF Inst, Credit Suisse Inst MMF Prime A, Lehman Brothers ILF MMP Inst, and Putnam Prime Money Market I -- all should return 5.33%, putting them in a tie for third place. Note that DWS Daily Assets Fund Institutional would have ranked No. 1 with a projected 5.40% return, but we didn't start tracking this previously-restricted fund until last month. Among individual, or "retail" funds, we project a three-way tie for No. 1 between DWS Cash Reserves Prime Series Inst, Fidelity Inst MM Port II, and Vanguard Prime MMF with returns of 5.14%. The average money market mutual fund, as measured by our Crane 100, returned 4.99% for 2007, the highest level since 2000's 6.18% return. The pending January issue of Money Fund Intelligence will feature full performance rankings for 2007, as well as our usual current yield rankings, where we will cite the official No. 1 ranked funds by category.

Legg Mason Protects Investors of Offshore Western, Citi Money Funds. Legg Mason says, "It has taken action to reduce the holdings of securities issued by certain asset-backed commercial paper ("ABCP") issuers held by two non-US stable net asset value liquidity funds" run by its Western Asset subsidiary (which also runs the Citi funds). Legg Mason entered into a "swap" costing $83 million to remove $890 million worth of SIVs from its Dublin-based Citi Institutional Liquidity Fund and Legg purchased outright an additional $132 million in SIV securities. Legg also "agreed to acquire" $99 million in Canadian ABCP from Citi Institutional Cash Reserves. A release says, "While current market conditions remain challenging, and no guarantees can be given, Legg Mason is confident that its liquidity funds will continue to maintain a stable net asset value and their portfolios are appropriately positioned to continue to satisfy the liquidity needs of investors." Legg Mason says "SIV exposure in liquidity funds has declined to 3.2% of total assets". It filed an 8-K with more details, but expects to take an expense of $89.7 million "as a result of all the liquidity fund support it has provided to date". Legg has previously taken action to protect its domestic U.S. money funds. The company added, "Neither fund, nor their shareholders, incurred any loss in connection with the transactions".

S&P Withdraws BlackRock Cash Strategies LLC Rating, Clarifies Situation. On Monday, we wrote "More Enhanced Cash Woes: BlackRock Cash Strategies Gets Downgraded," which cited Moody's downgrade due to restrictions on redemptions. Yesterday, S&P withdrew its AAAf/S1+ rating (not posted yet) at the request of BlackRock (the fund hadn't been downgraded at the time of the withdrawal). The ratings agency notes, "While the fund seeks to maintain $1.00 per share, this is not a rule 2a-7 money market fund under the '1940 Act' and there is no assurance that a constant net asset value (NAV) per share will be maintained." S&P continues, "With market events having reduced the liquidity of certain securities in the portfolio, coupled with large redemptions in the fund [assets fell from $2.4 Sept. 30 to $1.2 billion], BlackRock implemented a Capital Support Agreement (CSA), with a LOC from Wachovia Bank, to help protect the NAV of those shareholders who remain in the fund for losses up to $70 million on certain less-liquid securities. The current NAV of the fund with the CSA in place is $1.00 per share. Should shareholders opt to redeem now, they will not be protected by the CSA and will receive redemptions in-kind.... Currently, without the CSA, the fund's NAV has deteriorated less than 1%."

FT.com Erroneously Claims Money Funds Halt Redemptions, Break Buck. Since the credit crisis began in August, we've repeatedly seen incorrect reporting on money market mutual funds. But a new FT.com article takes the misinformation to a new level. In "Ailing fund bail-outs hit $3 billion," reporter Deborah Brewster claims, "Two other fund managers have suspended redemptions at money market funds." Speaking on "breaking the buck", she says "[M]any money funds have done so recently". These statements are both false. Like CNBC and WSJ, FT confuses enhanced cash vehicles with money funds. The article also mistakes total amounts purchased from funds with actual losses or "bail-outs", which are a mere fraction of the total securities purchased. We encourage readers to remain vigilant against such inaccuracies, and to complain about incorrect reporting. See ICI's "Media Advisory: Reporting on Money Market Mutual Funds" which urges reporters to be clear on what is, and what isn't, a "money market" or a "cash" fund. Again, for the record, no money market, or "cash" funds, have halted redemptions or broken the $1.00 NAV during the current crisis, contrary to some reports!

Stock Funds Get Liquid, Driving Money Fund Totals Higher in November. The Investment Company Institute, the trade group for the mutual fund industry, released its "Trends in Mutual Fund Investing: November 2007" statistics today. They show that stock funds showed rare outflows of $338 billion, or almost 5%, in November, while money market funds showed inflows of $108.9 billion, or 3.7%. Year-to-date, money funds have increased by an amazing $720 billion, or 30.6%, through 11/30. Liquid assets of stock funds, much of which is invested in money market funds, jumped to 4.2% from 3.9%. The percentage of "cash" in stock funds has risen steadily since hitting an all-time record low of 3.6% in September. Note too ICI's recent "Media Advisory: Reporting on Money Market Mutual Funds, which offers a "brief description of the key differences between traditional money market mutual funds and other types of cash-management vehicles". ICI says, "To avoid misleading or confusing readers, viewers or listeners, it is important for media reports to be clear about the distinctions between these investment vehicles. ICI's weekly money fund asset series showed a decline of $3.82 billion to $3.111 trillion in the week ended Wednesday.

Top 10 Money Market Fund Stories of 2007 From www.CraneData.com. Below, we rank the 10 biggest stories impacting the money market mutual fund world in 2007 as reported on http://www.cranedata.com's daily News and/or Link of the Day features. No. 10: Money Fund Ads Make Comeback. No. 9: Crane Data Launches Version 3.0 of Website with login access and premium subscriber areas. No. 8: Portals Stay Hot, Gain New Entrants. No. 7: Super-Premium Funds Rolling Out as Fidelity, UBS, Wells and others launch 13-14 bps high-end institutional shares. No. 6: Fed Cuts Drive Money Fund Yields Below 5.0%. No. 5: StratCash Liquidation Puts Enhanced Cash in Headlines. No. 4: Money Fund Break $3 Trillion Barrier. No. 3: Extensions of ABCP Trigger August Crisis. No. 2: M-LEC Triggers Crisis in Money Funds. No. 1: Advisors Buy Troubled Securities to Protect Money Market Funds.

More Enhanced Cash Woes: BlackRock Cash Strategies Gets Downgraded. In another case of an enhanced cash fund meltdown, and of mistaken identity by the media, today's Wall Street Journal writes "BlackRock Cash Fund Is Downgraded For Suspending Certain Redemptions". The rapidly shrinking (now $1 billion) BlackRock Cash Strategies Fund was downgraded by Moody's because it "has been unable to honor all the redemptions in cash, according to a letter to investors," says the WSJ. The fund, however, is not a "cash" or "money market" fund, but an enhanced cash or ultra-short bond portfolio. Reuters broke the story Friday, quoting BlackRock's letter to shareholders, "In addition, announcements related to similar products managed by other investment managers led to numerous redemption requests earlier in December". Moody's downgraded the pool from AAA/MR1 to Ba/MR2 (money funds have AAA/MR1+ ratings), saying, "BlackRock Cash Strategies is a privately placed institutional short-term investment vehicle, not subject to Rule 2a-7 of the Investment Company Act of 1940.... [The] downgrade actions follow BlackRock's recent decision to suspend daily fund redemptions, except in the case of redemptions-in-kind." BlackRock Cash Strategies continues to post a $1.00 NAV and that "all 22 clients in the fund have remained invested thus far" says the Journal. "Enhanced cash", or private placement "3c-7" funds, have been under duress since GE Enhanced Cash liquidated for $0.96 per share in mid-November and since Columbia Strategic Cash portfolio suspended redemptions on December 7. At least two other smaller 3c-7 distributors, Federated and SunTrust, have taken losses to exit the sector and pay investors their full $1.00 a share.

Janus Capital Removes Victoria Finance SIVs From Money Market Funds. Janus Capital said in a Dec. 21 SEC filing that it has "purchased at amortized cost plus accrued interest approximately $109 million of securities" from Janus Institutional Money Market Fund, Janus Institutional Cash Management Fund and Janus Money Market Fund. The "Securities were issued by Victoria Finance Ltd and Victoria Finance LLC through Stanfield Victoria Funding LLC", which were recently downgraded by Moody's from A-1 to Baa3/Not Prime. The company has "not received the valuation of the Securities following the downgrade and is unable to provide a preliminary estimate of any potential write-down," the 8-K filing says. Janus Capital adds, "Although the Securities remain investment grade, the Company is taking this action to protect investors in the Funds from possible losses associated with this downgrade.... The Securities are scheduled to mature between March 27, 2008 and May 7, 2008." Janus becomes the ninth advisor to purchase securities from its money market funds in order to shield investors from possible losses on troubled structured investment vehicles. Also, see Bloomberg's story.

Top 10 Money Fund Stories of 2007: Inflows, Bailouts, and Competition. Paradoxically, 2007 should go down as one of the best years in money funds' 35-year history. While funds endured SIV and ABCP trauma and bailouts, everyone's "bucks" held fast at $1.00, and inflows into funds dwarfed any seen historically. Our Crane 100 Money Fund Index, an average of the 100 largest taxable money funds, returned 4.99% in 2007. ICI's statistics should show money fund assets increasing by over $730 billion, or 30.7%, to a record $3.12 trillion, in 2007. To date, we've seen 8 advisors take action to remove or protect defaulted or downgraded securities from their funds, and we could see more. But investors have not been, and likely will not be, impacted. We also saw increased competition and interest in the institutional money fund segment, which now accounts for almost two-thirds of money fund assets. Low-expense share classes, more online trading portals, and extended operating hours marked this trend. Over the next several days, we will highlight our "Top 10 Money Fund Stories of 2007". Merry Christmas and Happy New Year to all, and thank you for your support in 2007!

SIV Master Liquidity Enhancement Conduit Is "Not Needed at This Time". The Super SIV, or M-LEC is no longer needed The Wall Street Journal reported late Friday. Individual bank supports and improvements in the structured investment vehicle market have made the fund unnecessary. A press release issued by Bank of America says that assets of SIVs "have been steadily reduced to less than $265 billion" and that a "continued decline is expected". The release continues, "This orderly unwinding of SIVs is contributing to improved market stability.... [T]he vehicle is not needed at this time. The consortium will continue to monitor market conditions and remain committed to work collaboratively on any appropriate solutions, including an activation of MLEC, if needed." The majority of SIV assets are bank affiliated, and over the past two weeks they have had parent banks pledge to support the structures. The dissolution of the SIV problem has been a huge relief to money market fund advisors, which in a handful of cases had been forced to purchase a handful of downgraded securities from their funds. Other coverage: Reuters (w/Pete Crane quote), Bloomberg, and NY Times.

S and P Rates Florida LGIP AAAm; Federated 13 Bps Launch on Hold. Standard & Poor's Ratings Services has assigned its highest principal stability fund rating, AAAm, to the Florida Local Government Investment Pool A, offered by the State Board of Administration (SBA) of Florida and managed on an interim basis by BlackRock. The SBA and Wilshire Associates "will develop an invitation to negotiate for the long-term contract for the LGIP money market management services". S&P expects the invitation to be issued "before January", and says the new manager must have 5 years experience managing an S&P AAAm prime institutional fund with over $10 billion in assets as of 9/30/07. S&P also withdrew a AAAm rating on the pending Federated Money Market Management Fund due to the postponement of the launch of the new 13 basis point institutional Premier Share Class. The fund's introduction has been delayed due to "current market conditions".

US Bancorp's Statement on First American Money Funds Support Action. Yet another disclosure of "valuation losses" related to advisors purchasing troubled securitites to support their money market funds appeared this morning. A Businesswire press release says, "U.S. Bancorp announced today that it will be recognizing in the fourth quarter a valuation loss of $110 million ...as a result of purchasing certain asset-backed commercial paper holdings from the rated money market funds managed by its subsidiary, FAF Advisors.... It results from the fact that rated money market mutual funds managed by FAF Advisors invested in asset-backed commercial paper that experienced stress arising from the liquidity disruptions and credit deterioration during the third and fourth quarter. Given the nature and credit ratings of remaining holdings of these money market funds, U.S. Bancorp does not expect additional valuation issues with the funds and the company does not intend to purchase additional investments from the funds. This action should not be considered a precedent for future actions or commitment by U.S. Bancorp to provide additional support to these funds." First American is the 18th largest money fund manager with over $52 billion in funds tracked by Crane Data. Its prime First American Prime Obligations Fund holds $19.6 billion in assets.

Money Fund Assets Decline Slightly Due to Corp Taxes, Holidays, Concerns. The latest weekly statistics from the Investment Company Institute show money fund assets declining by $4.5 billion to $3.116 trillion. Institutional funds saw outflows of $10.2 billion to total $1.969 trillion, while retail funds saw inflows of $5.8 billion to a record $1.147 trillion. Friday's quarterly corporate tax payment and tight Fed funds rate was likely responsible for the institutional decline, though big money continues to show a recent preference for government and treasury funds over general purpose "prime" funds. Prime institutional funds showed large outflows this week, but general purpose retail funds showed inflows. We expect to see assets decline ahead of year-end due to Holiday spending, but expect strong inflows to resume in January, is seasonally the strongest month for money fund assets. Year-to-date, money fund assets have risen by a record $734.5 billio, or 30.8%.

SunTrust Discloses Backing of STI Classic Funds, "Not a Precedent". Bloomberg reports that SunTrust Bank has purchased, at amortized cost plus accrued interest, $1.4 billion in securities "from two of its money-market funds to protect investors from possible losses". (SunTrust previously had requested an SEC "no-action" letter to provide a letter of credit to its Trusco Capital Management subsidiary to back STI's holdings of SIV Cheyne Finance). The company "expects to take a pretax writedown of $225 million to $250 million" in Q4 says today's 8-K filing. This extremely conservative number estimates losses on troubled SIV holdings of 16-18%; Crane Data guesses that eventual losses will range from zero to 4%. The filing also discloses a loss related to an enhanced cash product, SunTrust Core Cash. This "institutional cash fund" was shut down last quarter and investors "were paid $1.00 per share in cash". SunTrust says it "does not have a contractual or implicit obligation to take this action or provide additional support for the Funds" and "does not anticipate" additional issues" in its $10.2 billion STI Classic Prime Quality Money Market Fund and its $4.3 billion STI Classic Institutional Cash Management Fund. "This action should not be considered a precedent for future actions or commitment by the Company to provide additional support," the 8-K adds. The STI Classic funds are the 22nd largest money fund family with $24 billion in assets, according to Money Fund Intelligence XLS.

Morgan Stanley Joins List of Advisors Supporting Money Funds Over SIVs. In its latest quarterly earnings release, Morgan Stanley discloses losses related to supporting its money market mutual funds. The company says, "The results for the quarter include losses of approximately $129 million related to securities issued by structured investment vehicles (SIV losses) held by Asset Management." Morgan Stanley spokesman Mark Lake tells Crane Data, "We have taken prudent and pre-emptive steps to provide that investors in our money market funds are not adversely affected by the recent downgrades in Structured Investment Vehicles." The company says that it is comfortable with its current portfolios and that it continues to see steady asset flows. Morgan Stanley joins seven other advisors -- Columbia, Credit Suisse, Evergreen, First American, SEI, STI, and Western -- who have taken steps to back their money market funds and to protect them from the liquidity crisis in the structured investment vehicle market.

Fidelity Live With New 14 Basis Point Institutional Money Fund Classes. Fidelity Investments tells us that its new 14 basis point Institutional share classes launched yesterday. The new Fidelity Institutional Money Market Portfolio Institutional (FNSXX) and Fidelity Inst MM Prime Inst (FIPXX) will have $10 million minimum investments and will be waiving 4 basis points of their total 18 bps in expenses. The new Fidelity funds have been added to online trading portal BNY Mellon LMS (Liquidity Management Service). They join the 13 bps expense Federated Money Market Management Premier Shares, the 13 bps Wells Fargo Advantage Cash Invest Select, the 14 bps UBS Select Prime MMF Preferred, State Street Inst Treasury Inst, and others as new "super-premium" share classes designed to court the high-end institutional marketplace. (See also: Crane Data's 10/31/07 News "Federated Enters Super Institutional Market, Exits Enhanced Cash", Nov. Money Fund Intelligence's "Giants Launch Super Premium Share Classes", and July MFI's "How Low Can Expenses Go?") In other new Fund Filing news, GE Money Market Institutional and ING Institutional Prime Money Market Market IS have filed new fund registrations and are pending launch.

Florida Pool Shows Signs of Recovery, Seeks SandP AAA Rating. BlackRock, which was brought in the salvage the troubled Florida State Board of Administration's Local Government Invesmtnet Pool, appears to have done the job. (See the update posted today on the SBA website.) The temporary manager has announced a borrowing program for pool participants with Wachovia Bank, progress towards an S&P AAA rating, and positive inflows for the first time since the temporarily frozen pool resumed limited redemptions on Dec. 10. Pool investors may redeem the greater of 15% of their balance or $2 million, and any new investments, and may now gain access to the remainder via the new loan program. BlackRock also notes the approaching resolution of problems in the SIV sector. The "broader market environment continues to evolve", citing Citibank's Dec. 14 "intention to bring $49 billion in SIVs" onto its balance sheet. The pool continues to hold over $10 billion in assets. (See also: David Evans of Bloomberg's "Florida Got Lehman Help Before Run on School's Funds", and "Fitch Monitoring Local Government Investment Pools; Notes Sound Credit Quality".)

Crane Money Fund Indexes Lower in November, Asset Gains in Treasury. The broad Crane Money Fund Average fell by 0.29% in November to 4.22% (7-day yield) and 4.28% (30-day yield), while our flagship Crane 100 Money Fund Index fell to 4.56% and 4.60%. Longer-term, the Crane 100 Index returns for November were: 1-mo 0.38%, 3-mo 1.20%, YTD 4.61%, 1-yr 4.42%, 3-yr 3.97%, 5-yr 2.68%, and 10-yr 3.48%. The Crane Institutional Index dropped to 4.52%, while the Crane Individual MF Index fell 0.30% to 4.04%. The Crane Tax-Free MF Index was 3.09%. Money fund assets measured by Crane Data rose by $91.7 billion; almost $41 billion of the gain occurred in Treasury money funds. Note that the November monthly performance statistics for our Fund Detail pages, available to Web Access subscribers, are now updated at Resources, Browse Funds (http://www.cranedata.us/resources/funds/). Contact Pete to see the latest copy of our Crane Index monthly benchmarks or to see our full Money Fund Intelligence or MFI XLS, which contains rankings, assets, yields, returns and more on over 1,200 money funds.

Money Fund Crisis Ends, But Past Bailout Events Still Claiming Victims. Money market mutual funds breathed a sigh of relief following Citi's pledge to back its structured investment vehicles Thursday. While hopefully this marks an end to the imminent threat posed by SIVs to money funds, fallout from prior bailouts of extendible asset-backed commercial paper issues and SIV defaults and downgrades continues. The Wall Street Journal reports that Moody's has changed its outlook on some debt of Legg Mason's to negative due to "possible losses resulting from investors pulling money from the company's money-market funds". (Note: Crane Data's numbers shows Legg's Western Asset money funds with $9 billion of inflows in the latest 3-months through 11/30.) Moody's says Legg Mason has a "very remote possibility of facing losses in excess of $1 billion but that a more likely loss outcome is under $300 million, and potentially, even well under that amount.... The outlook change was driven by challenges the company currently faces with regards to the uncertainty of impending losses that Legg Mason may incur in order to protect the net asset values of several money market funds". Also, Credit Suisse saw Keith Shappert resign. (See "People" News below.)

Threat to Money Funds Evaporates; Citi's Pandit Pledges to Back Its SIVs. It appears that the problem that structured investment vehicles, or SIVs, have posed to money market mutual funds, may have reached resolution with the announcement that Citi will support its seven affiliated SIV programs. (See Peter Crane discuss the issue on Bloomberg TV here.) Bloomberg reports that Citi CEO Vikram Pandit said, "After considering a full range of funding options, this commitment is the best outcome for Citi and the SIVs." Citi's Beta Finance, Sedna Finance, and Five Finance, which represent almost $50 billion -- the bulk of remaining SIV assets -- that had been in danger of ratings downgrades, will be brought onto Citi's balance sheet. Money market mutual funds will undoubtedly be relieved by the news, as SIVs without the backing of high quality assets or deep-pocketed banks had represented the last serious threat of losses during the recent credit crunch. With Citi's actions, and news late today that Bank of Montreal is preparing a rescue plan for its Links Finance Corp., it appears that money funds have survived the recent credit crunch without anyone "breaking the buck" and without the handful of bailouts and backings becoming too costly.

Money Fund Growth Slows in Latest Week, But Assets Still Set Record. Money market mutual fund assets increased by $4.39 billion in the week ended Dec. 12 to a record $3.122 trillion. Retail MMFs increased by $1.53 billion to $1.142 trillion and institutional MMFs increased by $2.87 billion to $1.981 trillion. Most of the asset gains occurred in tax-free money funds. This week's asset slowdown follows a 5-week tear where money fund totals grew by $176.1 billion. If tradition holds, funds should soon begin seeing year-end Holiday- and window-dressing related outflows, but this normally is followed by a flood of bonus and seasonal inflows in January. Year-to-date, money fund assets have grown by an astounding $740.7 billion, or 31.1%. If asset increases hold, they'll break the 1-year inflow record, $440 billion (23.8%) set in 2001, by over $300 billion. Yields should begin declining gradually in the coming week as funds begin digesting the Federal Reserve's latest rate cut in its Fed funds target rate, from 4.5% to 4.25%.

MFI: Janus Wants "Color" From Investors, Says "Don't Chase Yesterday". In the current issue of Money Fund Intelligence, we interview Janus Capital Group and profile the top-performing Janus Institutional Cash Management and Janus Institutional Money Market funds. Janus briefs us on their current liquid strategy, their new online trading module and on the importance of managing and educating clients. Co-Portfolio Manager Eric Thorderson tells us, "We get great color from our customers. We've eliminated those that we're not getting good color from.... That's helped in the stability of our assets." MD Bill Crist says, "I think these portals especially have made it very easy to exchange in and out of the highest fund.... [I]t's not a good strategy to do that with your money market, because you are always chasing yesterday. It doesn't make sense, but ... sometimes people can't help themselves." On recent market troubles, Co-PM Craig Jacobson says, "We are remaining very conservative with our investments, and monitoring things closely, but it appears that SIVs are the only remaining sector out there that has major unresolved issues." E-mail us to request a copy of the full interview or issue.

Following Quarter-Point Cut, Federal Reserve Attempts to Lower LIBOR. After a lackluster reaction to yesterday's reduction of the Fed funds target rate from 4.5 to 4.25%, the Federal Reserve has announced additional measures to attempt to resolve lingering liquidity issues in the money markets. In a release entitled, "Federal Reserve and other central banks announce measures designed to address elevated pressures in short-term funding", the Fed has introduced "measures designed to address elevated pressures in short-term funding markets" in coordination with the Bank of Canada, the Bank of England, and the European Central Bank. Actions taken include the "establishment of a temporary Term Auction Facility ... and the establishment of foreign exchange swap lines with the European Central Bank and the Swiss National Bank". This plan will evidently allow the Fed to accept new and different forms of collateral at its discount window. See additional coverage: Greg Ip from Wall Street Journal, Reuters, and Bloomberg.

Columbia's Strategic Cash Liquidation Puts "Enhanced Cash" in Headlines. A flurry of stories appeared today on Friday's temporary halt in redemptions and yesterday's announcement of plans to liquidate the Columbia Strategic Cash portfolio, formerly the largest entrant in the "enhanced cash" sector. Once again, several media incorrectly identified the private placement bond fund as a "money market fund" or "cash" fund. Today's Wall Street Journal wrote, "A $34 Billion Cash Fund to Close Up". The New York Times wrote, "Mortgage Crisis Forces the Closing of a Fund". Bloomberg's story was "Bank of America to Liquidate $12 Billion Cash Fund". Reuters offered "Bank of America says closing enhanced cash fund". See Crane Data coverage -- Saturday's "More Enhanced Cash Troubles: Columbia StratCash Halts Redemptions", yesterday's "CNBC Gets It Wrong Again: Columbia Strategic Cash Not a Money Fund", and the new December issue of Money Fund Intelligence for more.

CNBC Gets It Wrong Again: Columbia Strategic Cash Not a "Money Fund". For the fourth time since August, CNBC has incorrectly labelled an "enhanced cash" bond portfolio a "money market fund". This time, CNBC and now WSJ erroneously refer to Columbia Strategic Cash Portfolio, a "3c-7" enhanced cash fund open only to qualifed institutional investors, as a "money market fund". It is not. It is neither "money market" nor "mutual fund". (See our Saturday story, "More on Enhanced Cash: Columbia StratCash Halts Redemptions".) The private pool, which has reopened trading at $0.994 cents and is allowing large investors "redemption in kind" into separately managed accounts, has an investment mandate that goes beyond money market funds. The fund has not "broken the buck" but has always had a variable NAV (though it hadn't deviated from $1.00 until now). Bank of America spokesman Jon Goldstein tells us, "Columbia has taken a series of actions to mitigate the impact, including financial support" and is offering investors "a range of credit and investment solutions to provide liquidity." Remaining in the fund is an option, but the pool is expected to "liquidate in an orderly fashion". Columbia's money market funds are not impacted by this and continue to operate normally, offering daily liquidity, competitive yields and high quality short-term investments. See also, Bloomberg "Bank of America to Wind Down $12 Billion Cash Fund".

Super SIV Launches, But Shrinking Fund May No Longer Be Necessary. Today's New York Times writes "Big Banks Scale Back Plan to Aid in Debt Crisis", and says, "Today, after a month of false starts, a new superfund created by the banks to keep the crisis in housing-related debt from deepening will begin raising money from financial institutions." It cites a research piece, "Who Needs a Super SIV Anyway?" by Alex Roever of JPMorgan, who says, "There certainly seems to be a shrinking supply of SIVs to save." Roever's report estimates that just $100 billion of SIVs now need saving, as assets are rapidly liquidated and as banks bring programs onto their balance sheets. The article says "most SIVs are unlikely to participate" because 4 SIVs, "including Cheyne Finance and Rhinebridge, have been forced to start unwinding and because 9 SIVs "including the two sponsored by HSBC, have announced restructuring proposals" and "several others affiliated with them are pursuing similar options. See also, WSJ's "Fund Takes Fire Out of SIV Sales" and Bloomberg's "Societe Generale Takes On $4.3 Billion of [PACE] SIV Assets".

More Enhanced Cash Troubles: Columbia StratCash Halts Redemptions. Market rumors swirled Friday that the largest entrant in the "enhanced cash" space, Columbia's Strategic Cash had halted redemptions. Enhanced cash pools, or "3c-7" funds, are private placements available to only the largest qualified institutional investors. We've received no official word from Columbia yet, but multiple investors and sources tell Crane Data that redemptions have been frozen temporarily but may be made "in kind", and that the pool is beginning the process of winding down or liquidating. Over half of the pool, $21 billion, has been separated into a "StratCash 2" portfolio, perhaps signaling a very large "in kind" separation. Assets of the now 2 pools have not declined precipitously, contrary to some rumors. StratCash has been gradually declined from $40 billion to $33 billion over the past several weeks. Columbia parent Bank of America reportedly set aside $300 million to support the pool previously. As in Florida, we don't believe any investors have suffered losses to date, and the fund's NAVs have remained at $1.00 a share so far. StratCash becomes the latest enhanced cash product to retreat from the besieged sector. Federated returned investors' money in full from its small entrant last month, taking a $4.9 million loss, and GE Asset Management liquidated its GE Enhanced Cash at $0.96 cents on the dollar.

Money Fund Assets See Big Jump in Latest Week to Record $3.12 Trillion. Money fund assets increased by $47.64 billion to a record $3.118 trillion in the week ended Dec. 5, reports the Investment Company Institute. Retail funds grew $9.09 billion to $1.140 trillion, while institutional funds approached the $2 trillion barrier, rising $38.54 billion to $1.977 trillion. For 2007, money market funds are headed for the biggest annual increase in their 35-year history and their largest percentage increase since 1981, when assets more than doubled to $186 billion. Assets have risen by almost $740 billion, or 30.9% YTD. The only other years showing larger percentage gains were 1978 and 1979, when money fund assets grew from $4 billion to $46 billion in a 2-year period. Since the credit crisis begain in early August, money fund assets have grown by an incredible $510 billion, or 19.6%.

Money Fund Inventor Bruce Bent Tells CNBC "No Third Shoe to Drop". Bruce Bent, the founder and chairman of The Reserve and creator of the first money market mutual fund, appeared on CNBC (see video here) this morning to defend money funds and discuss structured investment vehicles, or SIVs. Money funds were described by anchor Mark Haines as "a way for the little guy to enjoy safety and security ... dollar for dollar safe" while sharing in institutional money market yields. Bent told the business news network that money funds' mandate is, "Safety of principal, instant liquidity, and a reasonable rate of return.... It should bore you to sleep." When asked whether money fund managers did stay on the right side of their "Rule 2a-7" quality, safety and maturity regulatory guidelines, Bent said that he thought they did. "What we have is not a credit problem, but is a liquidity problem," he explained. When asked if the bad news for money funds is already out, Bent said, "I think any of the money funds that had [these problems] have already brought it to the fore.... I would very much be surprised if a third shoe dropped."

Structured Investment Vehicle Problem Nears Solution as Banks Back. Moody's Investors Service has delayed ratings actions on a number of structured investment vehicles by another week, reports Bloomberg. The delay comes as a number of SIVs step up restructuring plans and announce assistance from parent banks, and as the M-LEC, or Master Liquidity Enhancement Conduit launch appears imminent. The bulk of the remaining SIV assets could be protected by deeper pockets by next week, as pressure grows on Citi to back its Beta Finance, Sedna Finance, and Five Finance programs. Today, Rabobank said it will support its $7.6 billion Tango Finance, taking it onto its balance sheet, reports Reuters. "The Tango portfolio is high quality with only minimal exposure to CDOs of ABS," said the bank. HSBC has already said it will support its Cullinan Finance and Asscher Finance programs, and WestLB has pledged to back its Harrier Finance Funding. Standard Chartered, Bank of Montreal are also all expected to support their Whistlejacket Funding and Links Finance programs, respectively. Both SIV assets overall and money market holdings in SIVs have decreased dramatically over the past two months, with SIVs now totalling less than $300 billion, as programs liquidate or move holdings onto bank balance sheets. See also, today's WSJ story, "'Super Fund' for SIVs".

Crane 100 Money Fund Index Continues March Downward in November. Crane Data's flagship benchmark Crane 100 Money Fund Index, an average 7-day yield (simple) of the 100 largest taxable money market mutual funds, declined by 23 basis points in November, from 4.79% on Oct. 31 to 4.56% Nov. 30. The daily index (available on Bloomberg, symbol 'CRNI100D') has continued drifting lower in December. It was 4.54% as of Dec. 4. The Crane 100 had been at 5.00% as of July 31, 2007, prior to the credit crisis, rose to 5.04% as of Aug. 31, then fell to 4.95% as of Sept. 30. Money market mutual fund yields should continue their downward trend once, if as expected, the Federal Reserve lowers its Fed funds target rate from its current 4.5% level on Tuesday. E-mail Pete for a copy of our Crane Index product, which includes a number of additional cash benchmarks, or for a list of funds that make up the Crane 100.

BlackRock Named Interim Manager of Soon-to-be-Split Florida Govt Pool. In a decision and solution worthy of King Solomon, the Florida State Board of Administration's governing board voted to split its troubled Local Government Investment Pool into two, separating a 14% slice of SIVs, defaulted and troubled investments from an 86% high quality money market slice. BlackRock, which proposed the plan yesterday, has been named interim manager of the pools, and the board will be seeking RFPs for an investment manager to take over the permanent management of the pools going forward. Participants should be allowed to redeem a portion of their investments starting Thursday, with restrictions gradually being lifted. Other states and localities appear to be taking proactive approaches in backing their investment pools, not wanting to share the same fate as Florida, and Florida's problems and holdings appear in a league of their own. But money market funds and fund advisors will be the likely winners from this turmoil, as local investors seek a managers with a higher level of expertise and commitment (and deeper pockets).

Cash Investors Hoping for Breaks in Florida LGIP Deep Freeze, SIV Slide. Local Florida governments with their cash frozen in the State Board of Administration's Local Government Investment Pool are hoping for leadership, possibly in the form of a state guarantee, today as an advisory committee considers outside advisor BlackRock's recommendations on supporting, reopening and/or liquidating on what was the country's largest LGIP. While Florida appears to be in a league of its own with troubles, Bloomberg and others continue to look for other pool troubles, such as Connecticut and Montana. (Visit the Florida Board's website for today's meeting agenda and recommendations. Also look for Peter Crane discussing the issue on Bloomberg TV and radio Tuesday a.m.) Money market mutual fund investors are also hoping for some relief from the continued turmoil in the structured investment vehicle (SIV) market. Moody's recent downgrades and warnings, while expected, certainly haven't helped matters in the besieged sector. Orion Funding is the latest target of concern. While a minor SIV, held by only a handful of funds, the industry could use some good news in the form of the M-LEC or a Citi backing.

WSJournal's "Lessons Learned From a Wild Year" Features Peter Crane. Today's Wall Street Journal features comments from Crane Data founder Peter Crane in the article "Lessons Learned From a Wild Year", which is contained in WSJ's monthly "Investing in Funds" analysis. Crane says, "'Don't get greedy' and 'don't get excited' are my two favorites [lessons] from 2007. Investors were protected in money-market funds, but suffered damages in a lot of investments that claimed to yield more than 'cash' with no additional risk.... With money-market funds, some investors made the mistake of fleeing to Treasury funds, which offered pitiful yields. They were in effect shooting themselves in the foot, losing two percentage points of yield, in order to avoid the remote possibility of losing perhaps one percentage point of yield should their adviser not 'bail out' their prime money fund."

Rated Local Government Investment Pools Weathering Storm Says S&P. Following a halt in redemptions on the unrated Florida State Board of Administration's's Local Government Investment Pool (see survey of investors on site), Standard & Poor's Ratings Services issued a release saying, "[I]ts rated local government investment pools (LGIPs) have successfully managed through the recent credit and liquidity events with little or no impact on the pools' net asset values or ratings." S&P put King County, Washington's investment pool on "CreditWatch" on Oct. 22, but it has taken no action on any other of the 75 LGIPs from 26 states, which hold over $150 billion in assets. Just 17 had asset-backed commercial paper investments with 13.5% exposure on average, and only 9 held any structured investment vehicles (SIVs) with exposures of 3% on average. The largest rated pools (Florida is the largest unrated pool) include: State of Texas Treasury Pool, Texas LGIP, Georgia Fund I, Connecticut Treasurer's STIF, City of Los Angeles General Pool. Our December 2006 issue of Money Fund Intelligence will contained a table of the largest LGIPs, and our pending December 2007 issue will include more on this issue. See also today's WSJ, "Florida Weighs Steps Needed To Lift Freeze on State Fund".