News Archives: May, 2009

Travis Barker, Chairman of the London-based Institutional Money Market Funds Association spoke recently about the challenges that money market funds faced during the credit crisis. He noted at IMMFA's recent annual meeting that, "Out of crisis comes opportunity. And the opportunity IMMFA has been presented with is to 'get back to basics', to redefine what money market funds are (or ought to be), and to reassert their economic purpose."

A press release issued by IMMFA said that "Mr. Barker praised the ongoing work of the European Fund and Asset Management Association (EFAMA) to develop 'a common EU definition of money market funds' and "announced a significant revision of the IMMFA Code of Practice." Barker said, "First, the Code should be revised to ensure that it can operate as a stand-alone definition of an IMMFA Fund; Second, that those revisions should incorporate relevant learning points from the crisis -- for example, by elaborating the importance of liquidity management; and Third, that `the revised Code should continue to approximate, where possible, with rule 2a7, including those amendments to 2a7 recently proposed by the Investment Company Institute in its Report of the Money Market Working Group."

Barker's speech (see full text here) said, "It must seems strange that IMMFA would hesitate before answering the question 'what is a money market fund?' but the crisis revealed the answer to be unexpectedly complex... The EU UCITS Directive establishes minimum standards for investment funds, but leaves the definition of fund categories to national supervisors (or national trade associations where relevant). Consequently, different categories of money market fund have arisen in different countries, in response to different client demands."

He continued, "For example, a significant category of money market fund has arisen in France, another in Germany, and another in Ireland/Luxembourg. That last category is represented by IMMFA, and is modeled on US money market funds (commonly referred to as '2a-7 funds', after the relevant section of the Investment Company Act 1940). So, the answer to the question: 'what is a money market fund?', is: 'it depends.' Some categories of money market fund are very narrowly defined in terms of minimum credit quality and maximum duration. Other categories permit broader exposure to credit and duration. Still others impose few -- or no -- credit and duration limits, but define the product in terms of a money market benchmark."

"Ordinarily, the existence of different categories of money market fund would not be a cause for concern. Vive la difference! However, during the crisis, different categories responded differently to the extraordinary contraction in liquidity. To be sure, all categories of money market fund found it difficult to sell assets to raise cash, but those which had taken extended credit and duration risk were, by definition, worst affected. This complicated the attempts of regulators and central bankers to assess and respond to the situation," said Barker.

He explained, "After the immediate crisis had passed, the EU commissioned a high-level committee ... [to] make appropriate recommendations. Amongst other things, the de Larosiere Report recommends: '[T]he need for a common EU definition of money market funds, and a stricter codification of the assets in which they can invest in order to limit exposure to credit, market and liquidity risks.' The complex task of proposing 'a common EU definition of money market funds' has fallen in the first instance to the `European Fund and Asset Management Association (EFAMA) .... Naturally, IMMFA fully supports de Larosiere's recommendation, and we are encouraged by the progress and direction of EFAMA's work."

Finally, Barker said, "Closer to home, the crisis revealed that IMMFA's own Code of Practice doesn't provide a stand-alone definition of a money market fund. Rather, key parts of the definition are, in effect, out-sourced to the rating agents as a consequence of the requirement that IMMFA funds be triple-A rated. IMMFA has therefore surveyed its members on the Code who have confirmed: First, that those revisions should incorporate relevant learning points from the crisis -- for example, by elaborating the importance of liquidity management; Second, that the Code should be revised to ensure that it can act as a standalone definition of an IMMFA fund; and Third, that the revised Code should continue to approximate, where possible, with rule 2a-7, including those amendments to 2a-7 recently proposed by the Investment Company Institute (ICI) in its Report of the Money Market Working Group."

The Committee on Capital Markets Regulation, an "independent and nonpartisan 501(c)(3) research organization dedicated to improving the regulation of U.S. capital markets" that counts a number of mutual fund industry heavyweights among its members, recently released a report entitled, "The Global Financial Crisis: A Plan for Regulatory Reform. This report incudes a brief section that weighs in on the issue of changes in money market mutual fund regulations. The CCMR Report supports the ICI's recent recommendations, but also appears to come out in favor of continuing a system of government guarantees for money funds.

The Committee on Capital Markets Regulation Report says on "Money Market Mutual Funds," "Since they began operations in the 1970s, money market mutual funds (MMMFs) have come to play an increasingly important role in the U.S. money markets. Offering a very low-risk, stable investment mechanism for retail as well as sophisticated investors, MMMFs also provide a key source of short-term liquidity for the secondary markets. A distinguishing feature of MMMFs is their historically stable share price, usually $1.00 per share, which has facilitated their use as cash management devices as an alternative to banks. By law, MMMFs are limited to investing in high-quality, low risk assets with very short maturities, to best limit risks and thereby maintain this stable share price."

It continues, "Despite their low-risk profile, the financial crisis, as it escalated in the wake of Lehman's collapse, created tremendous instability for money market funds, drying up the flow of short-term liquidity they provided to the market. The Primary Reserve Fund was shown to have been exposed to increasingly risky Lehman commercial paper that, while giving it the competitive advantage gained from offering higher yields to its investors, nevertheless set the stage for large losses once Lehman fell. Significantly, as a result of the losses and the rush by investors to redeem their investments, the Primary Reserve Fund 'broke the buck,' prompting further runs on other MMMFs. As a result of this increasing spread of systemic risk, the U.S. Government through the Treasury Department decided to guarantee the accounts of shareholders in MMMFs existing on the date the guarantee was issued."

The Report says, "The crisis has highlighted the need for a reform of the regulatory structure underpinning MMMFs. In particular, we recommend that MMMFs adopt better crisis management and more robust mechanisms for risk monitoring, transparency and analysis. In this regard, we endorse a number of proposals that recently have been put forward by the Investment Company Institute. In addition, we note the possibility that the government support that is currently provided to guarantee certain shareholder accounts in MMMFs could continue into the future -- either explicitly or implicitly -- in view of their collective systemic importance. We believe that MMMFs must ultimately be required to compensate the taxpayer for any such protection provided going forward, and we invite policymakers to give further thought to formulating a suitable fee structure. As an alternative, there is a need to explore whether MMMFs might protect themselves through purchasing credit derivatives on themselves or issuing credit-linked notes that would absorb losses up to a certain percentage of NAV."

A press release issued yesterday says, "Sector Treasury Services, a leading treasury management and capital financing advisor to UK local authorities and a subsidiary of the Capita Group, has selected the SunGard Transaction Network's (STN) Money Markets portal to help its local government treasury clients meet their short-term investment requirements."

It continues, "STN's Money Markets portal is a global, multi-currency trading and connectivity solution for institutional money market investors, such as corporate treasurers and hedge funds. The STN Money Market portal offers the resources to help Sector's clients research, analyze, trade and report on money market funds through a single connection. STN's Money Market portal will also help provide Sector's clients with the ability to analyze money market fund investments and suitability while working with an ever increasing number of Sterling money market fund providers."

Sector Treasury Services, Associate Director Maryum Malik, said, "We chose SunGard's STN for its wide range of fund coverage and its integrated research capability for cross-comparing fund performance. STN provides historical data in one portal, along with underlying holdings of funds, yield comparisons, and filters on ratings. This will give our clients an intuitive platform with the freedom to make their own investments online and help them streamline the entire process."

Kevin Rafferty, president of SunGard's wealth management business, said, "As local authorities in the UK and around the world seek more effective ways of managing cash, they require access to tools that help them to assess and trade money market funds. By offering access to a wide group of investment options and enhancing the level of research available to treasurers, STN will help Sector enhance the effectiveness of its client offerings and service."

Sector Treasury Services is the "leading and independent provider of capital financing, treasury advisory and strategic advisory services to the Public Sector" in the U.K. The SunGard Transaction Network (STN) "links institutions throughout the financial services value chain, facilitating the purchase and sale of many securities types, including U.S. and foreign equities, fixed income, mutual funds, money market funds, certificates of deposit, and commercial paper."

For a list of links to portal providers, see Crane Data's Resources Page (under "Money Fund Portals"). Also, note that Crane's Money Fund Symposium will feature a free afternoon of online money market trading portal demos in Providence on August 25.

As promised, we have yet more excerpts from last week's Center for Capital Markets Competitiveness seminar, "The Money Market Mutual Fund: Why it Matters. Today, we quote from panelists on "The Future of Money Market Funds and Reform Enhancements," who discussed the concept of a floating rate net asset value for money market funds at some length. (The floating NAV discussion is about 1:50 into the webinar, in case you want to watch and don't have the full three hours.)

Buddy Donohue, Director of the Division of Investment Management at the U.S. Securities and Exchange Commission, said, "I thought that the [ICI MMWG] Report went to great lengths to really provide support for the benefits that derive from a stable NAV of the dollar. I don't think that the report did a good job of addressing the flip side, which are the consequences that derive from the stable NAV. I think that there were some aspects of the stable NAV that have been very problematic. It's the implicit guarantee ... it works really well. When they believe in it it's great, but when they don't believe in it, it is terrible.... That is one of the reasons why I do talk about a fluctuating NAV a $10 NAV to get at some of those particular issues that I don't think the report dealt with effectively that I think I have to deal with."

Randall Merk, Executive Vice President of Investment Management Services at The Charles Schwab Corp., said, "I think that the fact that Buddy and his team had to deal with [support actions from] 30 different fund families for 100 funds ... is an example of the fact that it [the money fund] isn't guaranteed and we can't assume that that's the case. But I think the Working Group spent a lot of time thinking about the variable NAV question. I think it's a very legitimate and a great topic of discussion, because there is that concern that money funds are ultimately a maturity mismatch and that there is some risk there that needs to be addressed. We really did look at that and took that seriously. [But] I think part of the reason why we still have trepidations about a variable rate NAV is because we're not necessarily sure that is going to stop a run either."

Donohue responded, "You don't know. You have a $4 trillion industry here that was built on a stable NAV and has been hugely successful. So you feel somewhat like a doctor in, 'First do no harm'.... Is there a way that weans people off of the belief that they're always going to get a dollar? Are there ways to deal with issues that come with the $1 that make the stable NAV that much better? You could approach it from either side, but I like to have the discussion. We have an opportunity to take the money fund model that's been so hugely successful and improve it but not break it."

George Gatch, Chief Executive Officer of JP Morgan Funds Management replied, "All financial intermediaries create a mismatch of some sort between either duration or credit. I think that the money funds are unique in the fact of how miniscule the mismatch is between the daily liquidity and the length of the maturity of the portfolio and the credit risk the portfolios are taking. Our effort has been to continue to reduce that mismatch while maintaining the very significant benefits of the money market funds to the economy and to investors.... There is no indication that a floating NAV would solve the systemic issue that we have as it relates to a run on the industry.... I think the question is weighing the relative mismatch that money funds have relative to other alternatives. I think the steps that we have taken have really substantially reduced the risks."

Finally, Barry Barbash, Partner at Willkie Farr & Gallagher LLP, said, "When it comes to trying to change up a fundamental aspect of a rule that's been around for 30 years, I think the SEC needs to really tread carefully. This rule has been out there. It's been amended seven times. The basic concept has remained the same and attempts have been made to perfect it. I think to then turn around and pull it at this point in time, the SEC, if it was going to do that, would need to have a very substantial, clear-cut case as to why that should happen, why we should go to a floating rate NAV. Frankly, I don't see it. I don't see that that kind of finding was made. I think it's right to ask the question. But ultimately I'm not sure what happened that's so different from what's happened before. In some respects, it's the scenario we never really wanted to face.... But on balance it seems as if the industry survived."

Paul Schott Stevens, President & CEO of the Investment Company Institute spoke yesterday in London at the Institutional Money Market Funds Association Annual Dinner on "These Great Masses of Money: Making Money Market Funds Even More Resilient." Stevens discussed the history and resilience of money funds, and dismissed the practicality of proposals to alter the fundamental structure of money funds.

Stevens said, "Now, ICI is not the only group that has been pondering the future of money market funds after the events of last September. No doubt you have heard some of the competing proposals, which would fundamentally alter the current regulatory or business model of American money market funds. Our Working Group found that the proposals are simply impracticable and could hurt the shareholders who depend on these funds, as well as issuers and other participants in the money market. Predictably, some of the ideas that surfaced -- such as regulating these funds as if they were banks -- are fading from the policy dialogue."

He continued, "One idea is hanging on, however -- the notion of eliminating the stable net asset value per share that has been characteristic of U.S. money market funds since their inception. This is a matter of serious concern, because our members tell us -- and our Working Group confirmed -- that the stable NAV is a crucial feature of money market funds, and a fluctuating NAV could destroy the value of the product. Because this is so important, let me take a moment to enumerate the problems with this idea."

"First, investors clearly desire a fixed NAV. A recent survey of major institutional investors in money market funds found that the majority overwhelmingly rejected the idea of floating the NAV. A money fund that strives to maintain a fixed value offers innumerable investor benefits -- ease of accounting and operational advantages. In the U.S., the fixed NAV simplifies a complicated tax treatment that would be required if the fund's capital gains and dividends were reported separately. And for many institutions, bylaws or investment policies require them to hold their ready cash in an instrument with a fixed value," he told the IMMFA dinner.

Stevens added, "What is the case for ignoring those benefits and forcing a floating NAV? Critics of the fixed NAV say that institutional investors respond to the small differences that can arise between a fund's 'shadow price' and the $1.00. This response, they argue, could destabilize a fund and set off a run. There are two problems with this theory. First, our long experience shows that very few institutions behave in that way, because most investors use money market funds to seek liquidity, not to arbitrage the difference between the shadow price and the NAV. Second, we looked specifically at the experience last fall of short-term bond funds and some European funds with floating NAVs. These funds saw sizeable outflows last fall -- exactly the outcome that the critics say they can prevent with floating NAVs."

Finally, he said, "Lastly, there is the factor that regulators sometimes overlook -- investor choice. If investors want a fixed NAV, and they cannot get it from the U.S. funds operated under Rule 2a-7, they will look elsewhere for alternatives. And there are many alternatives that do or could offer a fixed NAV. So if regulators mandate a floating NAV for U.S. money market funds, they may well simply drive trillions of dollars into funds to be managed elsewhere, in some cases with less regulation and oversight -- hardly a desirable outcome."

Today, we continue citing comments from Tuesday's U.S. Chamber of Commerce Center for Capital Markets Competitiveness seminar in Washington, "The Money Market Mutual Fund: Why it Matters. Yesterday, we quoted extensively from Vanguard's Jack Brennan (see below), who keynoted on "Money Market Funds: Weathering the Financial Crisis." Today, we quote from the rest of the seminar, which is now available in its entirety via recorded webcast.

David Hirschmann, President and Chief Executive Officer, Center for Capital Markets Competitiveness introduced the conference and asked, "Why would the Chamber of Commerce would pick this topic?" He said for three reasons -- "Just how fundamental the money market mutual fund is to Main Street America," "The industry has shown leadership in driving reform," and "The Guarantee looks like it will end and that taxpayers made out to the tune of $1 billion. It's a successful story."

The panel on "The Role of Money Market Funds in our Economy" included Charlie Morrison, President and Money Market Group Leader of Fidelity Management and Research Co., Paula Tkac, Financial Economist and Associate Policy Adviser of the Federal Reserve Bank of Atlanta, Kenneth Froot, Professor of Business Administration at the Harvard Graduate School of Business, and Tate Reeves, State Treasurer of Mississippi.

Treasurer Reeves says, "The primary reason we use money market funds is for liquidity purposes." He noted the state's extensive use of money funds and cited the "diversification of asset classes within the money market funds" as a major benefit. Morrison said that money funds are "arguably the most popular cash management vehicle that's out there."

Tkac noted, "The centrality of the money markets to funding markets in general." She said that last fall, "The crisis in money markets was spilling over.... The flight to safety was pushing past the money markets." She also noted that, "The U.S. money market was influential enough to influence the European banks.... This was the epicenter of the financial crisis. It was important to put a floor under it to stabilize everything else."

The second panel on "The Future of Money Market Funds and Reform Enhancements," run by Paul Stevens, President and CEO of the Investment Company Institute included Buddy Donohue, Director of the Division of Investment Management at the U.S. Securities and Exchange Commission, Barry Barbash, Partner at Willkie Farr & Gallagher LLP, Randall Merk, Executive Vice President of Investment Management Services at The Charles Schwab Corp., and George Gatch, Chief Executive Officer of JP Morgan Funds Management.

Look for more commentary from this panel in coming days, including quotes from panelists on the possibility of a floating rate NAV for money funds. Or watch the full 3-hour webcast at: www.uschamber.com/webcasts/2009/090519_ccmc_moneymarketfunds.htm.

John J. Brennan, Chairman of Vanguard gave the keynote address, "Money Market Funds: Weathering the Financial Crisis," at yesterday's U.S. Chamber of Commerce Center for Capital Markets Competitiveness seminar in Washington, "The Money Market Mutual Fund: Why it Matters." Brennan vigorously defended the money fund model, saying money funds "offer investors a 'hat trick' of safety, liquidity, and yield, while helping fund businesses and governments efficiently" and calling money funds the "single greatest intermediation vehicle ever invented".

He told attendees, "[T]he past 18 months have been one of the greatest learning experiences that we could have asked for with respect to the markets generally, the money markets more narrowly, and money market funds specifically.... [T]wo things are very clear. First, the American economy needs deep and robust money markets to function effectively. And, second, the money market fund industry is vital to ensuring that those markets work well."

He described the work of the ICI's Money Market Fund Working Group and said, "In the end, we produced a comprehensive 216-page report on money market mutual funds, complete with the history of the funds, an analysis of competing products and ideas, and an examination of the events of last September when The Reserve Primary Fund broke the buck. And, in the report, we made recommendations for improving money market funds. These recommendations were informed by the market events of the past 18 months, but, more importantly, they are based on three-and-a-half decades of experience serving money market fund investors."

He continued, "While the main 'product' of our efforts was a formal list of recommendations to improve money market funds, to me the sum of our great collective effort was the reaffirmation of a single, long-standing concept which was, I admit, a going-in bias of mine (and, I suspect, of many others in the industry). The belief is this: The money market mutual fund is the single greatest intermediation vehicle ever invented. Period. It's a well orchestrated, highly regulated, and mutually beneficial handshake between two parties."

"For investors, the money market fund has provided what you might call the 'hat trick' of safety, liquidity, and yield -- for more than 35 years. For issuers, it has meant simple, low-cost financing, whether you're J.P. Morgan or the local school district.... It's almost alchemical in nature. Better returns for investors than they can receive from other types of liquid, safe investments like bank accounts. Lower costs of financing than issuers can find from other sources. A true win/win situation," said Brennan.

Money funds "are short-term, transparent, very high-quality, and very low-cost" he says, adding, "Money market funds serve their investors and the issuer community at a cost measured in basis points rather than percentage points." Brennan also told attendees, "Investors seek that hat trick of safety, liquidity, and yield. In that order of importance. Safety, liquidity, and yield. Yield is essentially a byproduct of the first two (safety and liquidity) powered by low costs. One of the fascinating things about these client needs is that they are the same for all investors, from the largest institutions with billion-dollar accounts to my kids putting their summer earnings to work."

Finally, he said, "And it has worked. It has worked far better than unregulated cash management pools or 'near' cash vehicles which, as we've seen, can run into problems. In the stressful environment of 2008 and 2009, highly regulated money market funds proved to be the best options for investors.... The history of money market funds has been a great success story. But, the great American humorist, Will Rogers, put it best when he said, 'Even if you're on the right track, you'll get run over if you just sit there.' [O]ur industry has never been satisfied with 'just sitting there' and taking what we've learned -- again, over the long-run and in the short-term -- to make money market funds and the money markets even more effective for the next 35 years than they've been in the past has to be our goal."

In just three years, Crane Data LLC's product lineup has grown from a single newsletter, our flagship Money Fund Intelligence, to a lineup of over a dozen products providing information on money market mutual funds and cash investments. The latest entrant is Crane's Money Fund Symposium, a conference on money market mutual funds to be held at the Renaissance Hotel in Providence, R.I., August 23-25, 2009.

Crane Data's inaugural gathering will bring money fund portfolio managers, analysts, and traders; corporate and government cash investors; money market issuers; regulators, raters, portals and service providers; and other money fund professionals to discuss current issues in the marketplace. We are excited about our entry into the conference business (with the assistance of our partner, Kinsley Associates), and we invite all www.cranedata.com readers to attend.

Money Fund Symposium was created as an affordable new venue for exchanging ideas, networking, and learning about the latest investment strategies, business tactics, and news impacting money funds. Registration for Crane's Money Fund Symposium is just $500 for signups prior to July 1; sponsorships are almost sold out. The registration page is now live at www.kinsleymeetings.com/crane/register.asp and the final agenda has now been set.

Speakers include: Crane Data's Peter Crane, Federated Investors' Eugene Maloney and Debbie Cunningham, Wells Fargo Advantage Funds's Dave Sylvester, Standard & Poor's Peter Rizzo, ICI's Brian Reid, Treasury Strategies' Tony Carfang, SSgA's Steve Meier, Western Asset's Kevin Kennedy, Dreyfus' Colleen Meehan, SVB Asset Management's Joe Morgan, Banc of America Securities' Chris Walsh, JPMorgan's Alex Roever, Capital Advisors Lance Pan, IMMFA's Travis Barker, Fitch Ratings' Viktoria Baklanova, Moody's Henry Shilling, Reed Smith's Steven Keen, Pricewaterhousecoopers' Tony Evangelista, and more.

Sponsors include: Banc of America Securities, Cachematrix, Federated Investors, Fidelity Investments, Fitch Ratings, J.M. Lummis, Wells Fargo Advantage Funds, Standard & Poor's, Capital Advisors Group, Matrix Financial Solutions, Moody's Investors Service, Invesco AIM, Western Asset Management, Bank of Ireland, and Citi Online Investments.

Free post-conference online money fund trading portal demos and Money Fund Wisdom (Crane Data's new database software) training workshops are also being offered. (Registration is required though.) Click here for the agenda or e-mail Pete for the full PDF brochure. The $500 registration fee includes all meals, refreshments, and a Rhode Island "clambake style" dinner. A special room rate at the Renaissance Providence is $169 a night for attendees that sign up before July 29. We hope to see you in Providence!

Last Thursday in Washington, the Investment Company Institute held a meeting of its Institutional Money Market Funds Advisory Committee, which was formed two years ago to discuss industry issues involving money market funds. The latest gathering included Crane Data's Peter G. Crane presenting on "The State of the Money Market Mutual Fund Marketplace," as well as non-public discussions on the "Report of the Money Market Working Group and Rule 2a-7 Reform," Government Programs, and Credit Rating Agencies Reform."

Crane gave an overview of the current state of money funds, examining asset flows, support events, and a slew of money fund statistics. He told the audience of about 50 money fund industry heavyweights that he guessed that even in the "greatest disaster in the history of the money fund business", Reserve Primary Fund's "breaking the buck," this fund would even eventually show a positive return in 2008. He also disagreed with the common wisdom that investors and institutions are holding record levels of cash, citing recent ICI stock fund liquid asset levels as actually being near record lows.

On the current state of money funds, Crane told attendees that despite the unprecedented turmoil in the space, money fund assets remain just a little over $100 billion below their record level of $3.9 trillion (set on Jan. 14, 2009). He noted that money funds have almost 40 million shareholders, representing one of the most powerful political demographics in the country -- "people with money" -- that money funds bring in more revenue than Hollywood at the box office, in the range of $13 trillion a year, and that money funds have paid investors over $1 trillion in their 40-year history. He added that, according to press reports on campaign filings, President Obama was a money fund shareholder, holding almost one-half a million in a Northern Institutional Municipal money fund.

Crane's slides showed the shift away from Treasury funds and into Government and Prime funds since December, and noted that overall assets remain over $300 billion higher than they were in the weeks following Reserve. He told the ICI group that the historical relationship of money funds to Fed funds has changed; money fund yields have been running about 1/4 percent over the Fed funds target vs. 1/4 percent under in the past. Crane also detailed the Subprime Liquidity Crisis timeline, and reviewed the series of support action taken by almost 1/3 of all money fund advisors. He urged members to expand their educational and communication efforts to prevent investors' "bosses' bosses" from saying "Sell everything" in the future.

Finally, Crane speculated on what he thought the SEC's pending recommended changes to Rule 2a-7 would look like, mentioning the spread WAM and concentration disclosures as areas of interest. He also said that 75% of money fund assets are currently covered by the Treasury's Guarantee Program and that he didn't think Treasury could afford to have any fund "break the buck". He also noted that there was an outside chance of the program continuing. While money funds have had their problems, he noted that their competition has been "decimated". "In the land of the blind, the one-eyed man is king," quoted Crane.

Subscribers to Money Fund Intelligence may request a copy of the Powerpoint by writing info@cranedata.us.

ICI's latest weekly "Money Market Mutual Fund Assets" release says, "Total money market mutual fund assets increased by $2.33 billion to $3.790 trillion for the week ended Wednesday, May 13, the Investment Company Institute reported today. Taxable government funds decreased by $910 million, taxable non-government funds increased by $2.34 billion, and tax-exempt funds increased by $900 million.

ICI's weekly report says, "Assets of retail money market funds decreased by $13.47 billion to $1.276 trillion. Taxable government money market fund assets in the retail category decreased by $4.03 billion to $220.12 billion, taxable non-government money market fund assets decreased by $7.64 billion to $781.04 billion, and tax-exempt fund assets decreased by $1.81 billion to $274.46 billion."

It continues, "Assets of institutional money market funds increased by $15.80 billion to $2.514 trillion. Among institutional funds, taxable government money market fund assets increased by $3.12 billion to $1.111 trillion, taxable non-government money market fund assets increased by $9.98 billion to $1.213 trillion, and tax-exempt fund assets increased by $2.71 billion to $190.40 billion."

While money fund assets (barely) broke a three week losing streak, assets remain down by $40.5 billion year-to-date, and they remain $135 billion below their record high of $3.922 billion set the week ended Jan. 14, 2009.

In other news, see the article "Money market turmoil isn't scaring many" in the St. Louis Post-Dispatch, which says, "Crane, the founder and president of Crane Data, thinks the vast majority of investors will stick with their money funds, even with low rates and without government insurance."

It quotes Crane, "The biggest argument for why the industry won't be much smaller is that it isn't much smaller. You've seen an impressive series of stresses, and yet they're still at $3.8 trillion in assets." The Post adds, "That's down only slightly from a peak of $3.9 trillion, reached in January. Investors seem to agree. They've voted with their dollars, and their verdict is that the money fund isn't broken."

Today we continue excerpting our recent interview of UBS's money market team, originally printed in the Money Fund Intelligence May 2009 issue. We asked, "What have been the keys to UBS's success in the money fund space? Rob Sabatino told us, "It has been our conservative approach. We have adhered to the principles of 2a-7, rather than chasing yield. Our investment process is based on fundamental credit analysis, which along with an experienced portfolio management team, has enabled all of our money market funds to maintain a $1 NAV without parental support."

Sabatino adds, "Some of the problems that have occurred within money market funds over the last two years have been due to large asset swings. We monitor and manage our shareholder base actively to avoid having problems. I would say it also speaks to our conservative nature. Since we've never chased yield, we never attracted hot money. So, again, we don't see massive swings into or out of our funds."

He tells us, "Even the best relationships are not immune from the reality of economic crisis. The balance sheet issues that the dealers had forced us to realize they may not be able to provide liquidity. In extreme environments, numerous clients may need to exit money funds simultaneously. Even though we rely on these relationships and we value them, ultimately you have to realize that in the hardest times people are going to look out for their own economic interest. We manage the fund accordingly."

We then asked, "What are you buying now? What aren't you buying? Sabatino responded, "The key for us remains liquidity. We realize that you can't count on the Street to provide liquidity. The market has improved significantly, but it remains paramount for a money market fund to maintain daily liquidity in order to meet unexpected redemptions. We maintain a large percentage overnight utilizing repo, CP, and time deposits."

He said to MFI, "We continue to allocate a significant percentage to agencies and treasuries. In terms of credit, we are taking our credit risk very short. We continue to favor the multi-seller, large, bank-sponsored ABCP conduits. Not only do we like the asset class, but currently have the added advantage of the Fed backstop providing liquidity through the AMLF."

Finally, Sabatino says, "I think our internal requirements are more stringent than the ICI's recommendations. We try to keep roughly 10% overnight, and in this current environment are more like 20% overnight. Then we go even further to maintain a large percentage within 35 days.... We feel it's necessary for us to keep adequate liquidity, in case there is some sort of fear in the marketplace or unwind out of money market funds. So we think it's in the fund's best interests to maintain significant amount of liquidity."

Contact Crane Data to subscribe to or to receive a free sample of our Money Fund Intelligence (just $500 a year). MFI interviews a different money fund manager each month and contains news, articles, indexes, rankings and performance statistics on the money market mutual fund universe.

This month Money Fund Intelligence interviewed UBS Global Asset Management's Rob Sabatino, Head of US Taxable Money Markets, and Ryan Nugent, Portfolio Manager for Municipal Money Market funds. We also discussed distribution topics with Joe Abed, Managing Director and Head of UBS's Money Market and Short Duration Business, and with Tom Cameron, Executive Director & Head of Short Duration Distribution. We excerpt from the article below, and we will continue the interview in tomorrow's Crane Data News.

We asked, "What's been the biggest challenge in managing a money fund?" Sabatino told us, "The greatest challenge has been managing our shareholder's expectations. There is a delicate balance between risk and reward, especially in a low interest rate environment.... In the current environment the majority of investors are more concerned about safety and liquidity.... But given the low interest rate environment, which we expect to continue for quite some time, I think it's going to represent a bigger challenge going forward, especially when clients return to a focus on yield," he added.

Nugent said, "On the municipal side, the challenge is finding things to invest in that pass our rigorous credit standards. There used to be a greater range of quality securities for us to purchase -- banks were in much better condition. But now, it seems everyone is chasing the same, much smaller pool of high quality securities out there. Since we are not willing to reduce our credit and liquidity standards, it has been difficult to get fully invested at times."

Sabatino also tells us, "Asset flows have a significant impact on managing a portfolio. We try to maintain a close relationship with all of our shareholders, and we utilize our sales force in order to do that. It is necessary to actively monitor and control the shareholder concentration to mitigate some of the risk ... especially given the rise of portals. Asset flows could become more volatile now than in the past. We manage our funds to meet stress tests in terms of potential outflows and liquidity needs."

We asked, "What are the factors driving your growth? (UBS has more than doubled its money fund assets since October 2007.) Abed told us, "We were helped by a growing market, but we've basically doubled our market share in the institutional space. We didn't do it like some of our peers, who attracted hot money with higher yields by temporarily waiving fees, or worse, by taking more risk in the portfolios. We've done it profitably the whole way through, and we've been very conservative in our portfolio management the entire time, not trying to play the yield game or chase hot money. It's been the very steady growth of a stable base of assets, not concentrated in any way or any market segment."

Look for more of Money Fund Intelligence's UBS profile tomorrow.

Worldwide mutual fund assets decreased 12.4% in the fourth quarter of 2008 to $18.97 trillion according to the Investment Company Institute's latest "Worldwide Mutual Fund Assets and Flows Fourth Quarter 2008." But the report says, "Assets of money market funds increased 6.8 percent to $5.8 trillion at the end of the fourth quarter." Money fund assets increased their share of total mutual fund assets worldwide to 30.5%, and U.S. money funds grew their share to 66% of all worldwide money fund assets.

ICI's latest quarterly says, "Net flows into money market funds jumped to $444 billion in the fourth quarter from $31 billion in the third quarter of 2008. For the year as a whole, money market funds had net inflows of $891 billion and long-term funds had net outflows of $610 billion in 2008." U.S. money funds accounted for the lion's share of inflows, up $368 billion in the quarter and $753.6 billion for the year, while Ireland experienced huge outflows, dropping $107.4 billion in Q4 and $230.9 billion in 2008 to $720.5 billion (12.4% of all assets). (Note that doesn't split out Ireland's assets by type, but that the vast majority are money funds.)

The survey, compiled on behalf of the International Investment Funds Association, continues, continues, "The Americas experienced net inflows of $388 billion into money market funds in the fourth quarter compared with net inflows of $34 billion in the third quarter. Asia/Pacific money market funds reported net inflows of $58 billion in the fourth quarter, up from net inflows of $18 billion in the third quarter. European money market funds registered net outflows of $3 billion in the fourth quarter, after reporting net inflows of $12 billion in the third quarter."

Crane Data's analysis of the full tables, available here, show that China posted the second largest money fund inflows after the U.S., $33.2 billion, to $57.0 billion, followed by Korea (up $18.0 billion to $71.9 billion) and France (up $10.9 billion to $678.6 billion), the third-largest market for money funds. After Ireland, Australia (down $22.6 billion to $176.6 billion), Italy (down $10.9 billion to $79.5 billion), and Mexico (down $10.0 billion to $35.3 billion) showed the largest asset declines in Q42008.

The latest Crane Index publication, our monthly summary of money market mutual fund averages and cash benchmarks excerpted from Money Fund Intelligence, shows money fund yields hitting all-time lows in April 2009. The Crane 100 Money Fund Index, an average of the 100 largest taxable money funds' latest 7-day yields, fell 5 basis points to 0.38% in the month ended April 30, while our broader Crane Money Fund Average, made up of 886 taxable money funds, also fell 5 bps to 0.21%.

The Crane 100 30-day annualized simple yield was 0.40% in April. The 100 largest funds showed a 1-month cumulative return of 0.03%, a 3-month return of 0.13% (unannualized), a year-to-date return of 0.20%, and a 1-year return of 1.60%. Average annualized returns for the Crane 100 Money Fund Index were 3.68% over 3 years, 3.23% over 5 years, 3.22% over 10 years. The Crane 100 average 7-Day Gross Yield (annualized) was 0.75% as of April 30, 2009. The Crane 100 7-day yield average, currently 0.38%, was 1.22% as of Dec. 31, 2008, was 2.47% a year ago, and was 4.98% two years ago (April 30, 2007).

The Crane Institutional Money Fund Index (7-Day Yield), which is made up of 433 taxable money funds marketed to corporations and fiduciaries, was 0.30% as of April 30, down 0.06% in the month. The Crane Individual Money Fund Index, comprised of 453 taxable retail money funds, was 0.13%, down 0.03%. The Crane Tax-Exempt Money Fund Index, which is made up of 438 tax-exempt and municipal money funds, yielded 0.36% at month-end, unchanged from March 31, 2009.

Among fund sub-categories, the Crane Treasury Institutional MF Index was 0.06% as of April 30, the Crane Government Inst MF Index was 0.17%, and the Crane Prime Inst MF Index was 0.50%. The Crane Treasury Individual MF Index was 0.01%, the Crane Govt Individual MF Index was 0.06%, and the Crane Prime Individual MF Index was 0.22%. The Crane Tax Exempt Institutional MF Index was 0.56%, the Crane T-E Individual MF Index was 0.29%, and the Crane State Tax-Exempt Index was 0.33%.

Our Crane Brokerage Cash Index, which is made up of FDIC-insured brokerage sweep products and money fund yields from the 11 largest brokerages, was 0.13% in April, while the Crane Brokerage Sweep Index, which includes FDIC-insured sweep programs only, yielded 0.05%. The Top Bank Money Market Index, an average rate of the 10 highest yielding bank savings and money market deposit account products, was 1.88%.

Crane Data LLC began publishing its indexes in May 2006. For more details on our Crane Indexes, for a copy of our latest monthly Money Fund Intelligence, or Crane Index, or for information on our historical Crane Index averages, contact Pete. You can also find selected Crane Indexes on The Bloomberg (type "ALLX CRNI" for a listing).

John V. Murphy, Chairman of OppenheimerFunds Inc. gave the "ICI Chairman's Address" at this year's 2009 General Membership Meeting. Murphy discussed money market funds, saying, "Another area where ICI has brought its resources to bear is the debate over money market funds. As you know, more than a year into the credit crisis, and after an unprecedented series of events, the Reserve Primary Fund became only the second money market fund in history to 'break a dollar' last September."

He continues, "In November, ICI's Executive Committee formally chartered a Money Market Working Group, led by Vanguard's Jack Brennan, to address questions about how the money market operates and how money market funds should be regulated. They faced a daunting challenge. They needed to preserve the features that make money market funds so valuable to investors, to issuers, and to the economy. But they also needed to make funds more resilient, to better withstand even the most adverse market conditions."

Murphy says, "The Brennan Report literally 'writes the book' on money market funds -- and draws the blueprint for the future of this vital product. It offers new and heightened standards for the operation of money market funds in every key area -- including liquidity, credit quality, maturity, client concentration, and transparency. As these recommendations are adopted by the industry, tomorrow's money market fund investors will face even less risk than today's do."

"The Working Group also considered proposals made by others that would fundamentally alter today's money market funds -- ideas such as floating funds' net asset value, or requiring insurance, or converting money market funds into special-purpose banks. In each case, the group concluded that these ideas are impracticable and could hurt investors, issuers, and other participants in the money market," he adds.

Murphy says, "The Brennan Report's recommendations have been well received. Without endorsing the report, SEC Chairman Mary Schapiro and Treasury Secretary Timothy Geithner have both called for strengthening the regulatory framework for money market funds. They cited the same areas -- credit quality, liquidity, and mitigating the risk of a run -- that the Working Group focused on. The SEC has indicated that it will come forward with a package of proposals soon, and we look forward to working with them on it."

Finally, he says, "But we're not just waiting around. Members of the Working Group committed to move ahead voluntarily on those proposals that can be implemented without regulatory action. And ICI's Board of Governors called upon all money market funds to do the same. Reports from our members indicate that they are moving rapidly to implement these proposals."

Vanguard's Brennan is scheduled to lead a panel Friday that will touch on money funds, and SEC Chairman Mary Shapiro is also scheduled to speak.

The May issue of our flagship Money Fund Intelligence newsletter, which goes out this morning to subscribers, features the articles: "Money Fund Intelligence Celebrates 3rd Birthday," which discusses Crane Data's evolution and progress in providing money fund information; "UBS Banks on Liquidity, Diversity in Its MMFs," which profiles UBS Global Asset Management portfolio managers Rob Sabatino and Ryan Nugent; and, "Examining the Odds of Big Regulatory Changes," which discusses and downplays the possibility of significant change in money market mutual fund regulations. Every issue of MFI also includes news, performance rankings, Crane Indexes, and more.

The first issue of Money Fund Intelligence was published in May 2006. A mere 8 pages, it covered just 150 funds. MFI has since grown into a 30-page, 1,300 fund publication, packed with news, rankings, tables, and statistics. `The Money Fund Intelligence newsletter has since grown into a dozen products covering money funds and the money markets. We hope you will celebrate with us by becoming a customer to help us deliver quality information on money market funds!

When Crane Data launched its Money Fund Intelligence three years ago this month, little did we know that money funds were about to embark on the most wonderful and terrible period in their 40-year history. While it's been stressful and downright traumatic for many of our customers and friends, we probably couldn't have picked a better time to launch a money fund information service. The demand for money fund news, performance statistics, indexes, analytics, and education has never been greater.

In the 3 years since launching MFI, Crane Data has introduced a growing suite of money fund information products. These include: Money Fund Intelligence XLS, an Excel 'complement' to MFI, Money Fund Intelligence Daily, Money Fund Intelligence Distribution Survey, Brokerage Sweep Intelligence, Money Fund Intelligence International, and our new Money Fund Wisdom premium database service. Please don't hesitate to contact us with questions or to request sample issues or information.

To our loyal readers and especially to our paying subscribers: We hope you've enjoyed Money Fund Intelligence and Crane Data's suite of information products so far! We will continue to relentlessly pursue our mission of faster, cheaper and cleaner money market mutual fund information. Again, thanks to our subscribers, supporters, and information providers. We owe you a debt of gratitude, and we look forward to serving you in the years ahead. Sincerely, Peter G. Crane, President & Publisher, Crane Data LLC.

The Securities & Exchange Commission issued a release yesterday entitled, "SEC Charges Operators of Reserve Primary Fund With Fraud", alleging that The Reserve "misrepresented that RMCI would provide the credit support necessary to protect the $1 net asset value of the Primary Fund when, in fact, RMCI had no such intention" and "understated the volume of redemption requests received by the fund and failed to provide the trustees with accurate information concerning the value of Lehman securities".

It reads, "The Securities and Exchange Commission today filed fraud charges against several entities and individuals who operate the Reserve Primary Fund for failing to provide key material facts to investors and trustees about the fund's vulnerability as Lehman Brothers Holdings, Inc. sought bankruptcy protection. In bringing the enforcement action, the SEC also seeks to expedite the distribution of the fund's remaining assets to investors. In a complaint filed in U.S. District Court for the Southern District of New York, the agency is asking the court to enter an order compelling a pro rata distribution of remaining fund assets, which would release a significant amount of money that is currently being withheld from investors pending the outcome of numerous lawsuits against the fund, the trustees and other officers and directors of the Reserve entities."

SEC Chairman Mary L. Schapiro says, "We're taking the lead in this matter because we want to get money back into the pockets of the investors as quickly as possible. Through this action, we hope to avoid inconsistent rulings regarding a finite pool of money and assure a fair result." She adds, "As we alleged in our complaint, the fund's managers turned a blind eye to investors and the reality of the situation at hand before the fund broke the buck last September."

"Fund managers have serious obligations to keep their trustees and investors informed in both good times and bad, and cannot choose to reveal only favorable facts," said James A. Clarkson, Acting Director of the SEC's New York Regional Office. The release says, "The SEC's complaint seeks a final judgment ordering the defendants to pay financial penalties and disgorgement of ill-gotten gains plus prejudgment interest, and enjoining them from future violations of the federal securities laws."

Dow Jones quotes a response from Reserve Chairman Bruce Bent, "Since we created the money fund in 1970 we have operated and grown our business by putting our shareholders' interests first. The Lehman Brothers bankruptcy filing created an unforeseeable and out-of-control condition for many parties and the results were serious. Our management worked extremely hard throughout the chaotic and fast-moving events of September 15-16 and we remain confident that we acted in the best interest of our shareholders. We are hopeful that this matter can be resolved quickly."

As we learned from a Bloomberg article yesterday ("SEC Money-Market Rules to Be Stiffer Than Industry's"), the U.S. Securities and Exchange Commission Chairman Mary L. Schapiro gave a speech entitled, "Address to Mutual Fund Directors Forum Ninth Annual Policy Conference: Critical Issues for Investment Company Directors, which contained several paragraphs on money market funds.

Shapiro said, "Of particular interest to you as fund directors are the SEC's efforts to address investor confidence in money market funds. Approximately 770 SEC-registered money market funds hold nearly $4 trillion in investor assets. This sizable market is critically important for both retail and institutional investors who use money market funds as a cash management tool. It is also important for banks, corporations, municipalities and other borrowers for whom money market funds are a key source of short term credit."

She continued, "I know that many of you in this room have spent considerable time since August 2007 focused on money market fund issues and the impact of certain investments, including structured investment vehicles, on your funds' net asset values. Despite the turmoil in the credit markets in 2008 and the first 'breaking of the buck' by a widely held money market fund last fall, aggregate money market fund assets actually increased by $750 billion last year, representing a 23 percent increase in assets. However, the impact on investor confidence resulting from the events of last year can be seen in the change in composition of money market fund assets during 2008."

"Assets of Treasury and government money market funds increased by more than $700 billion or 90 percent. On the other hand, assets of prime funds, which invest in corporate commercial paper, declined by $55 billion or 3 percent. Thus, there was a significant 'flight to quality' as investors pulled their money from other segments of the market and placed it in Treasury and government money market funds, expecting a relatively safe and liquid investment," she told the fund directors.

Shapiro added, "In light of the events of last fall, it is essential that the SEC comprehensively re-examine the money market fund regulatory regime. We should do so with a view toward enabling money market funds to afford investors the relatively safe and liquid investment that they expect from an SEC-registered money market fund. Our staff is closely examining the credit quality, maturity and liquidity provisions currently applicable to money market funds to consider ways to strengthen their requirements and better protect money market fund investors."

"I have asked the staff to present a proposal to the Commission in June. In addition, we are carefully reviewing whether more fundamental changes are needed in money market fund regulation, including whether floating rate net asset values for money market funds would better protect investors from potential abuses and runs on the funds."

Finally, she said, "The report on money market reform recently issued by the ICI Money Market Fund Task Force represents an important and very constructive first step toward reconsideration of money market fund regulations. But it is just that, a first step. The SEC's examination of the issues and our eventual reforms are likely to extend beyond those advocated by the ICI's report. As front row spectators and on-the-ground participants for many of the challenges that money market funds have faced since August 2007, your input will be greatly valued as the SEC pursues money market reform to better protect investors."

Look for more comments later this week, as Shapiro is also scheduled to speak Friday morning (May 8) at ICI's General Membership Meeting in Washington.

Both Western Asset and BlackRock recently informed money fund shareholders that they would be discontinuing the use of the CitiFunds and Merrill Lynch monikers, respectively, on a portion of their money market mutual fund lineups. Legg Mason subsidiary Western has managed the CitiFunds, which will be renamed the Western Asset/Citi Funds, since the 2005 swap of their brokerage for the asset management businesses of Citi, while BlackRock has managed the Merrill Lynch funds since their 2006 deal. On Monday, May 4, BlackRock's Merrill Lynch and Merrill Lynch Institutional money funds will drop the Merrill from their name; the ML Institutional funds are being renamed "FFI" (which stands for "Funds for Institutions"). Western's "Citi" de-branding will begin on June 1.

Western said to clients in a letter, "We are notifying you that we are changing the name of all the CitiFunds Money Market Funds. This change reflects that Western Asset, a subsidiary of Legg Mason, is -- and has been --the investment manager for these funds since December of 2005. You may recall that Citigroup Asset Management was acquired by Legg Mason in December of 2005, with Western Asset assuming the control and management of the money market business. At that time, Citigroup agreed to license the 'Citi' brand for our money market funds until the agreements expiration on May 31, 2009. Accordingly, on June 1, 2009, the CitiFunds Money Market Funds will be re-named 'Western Asset/Citi' for the next twelve months, until they are finally re-named 'Western Asset' on June 1, 2010."

It adds, "Please be assured that this is solely a name change. The dedicated investment and client service professionals you've worked with over the years remain the same. Additionally, all the account identifies -- cusips, tickers and fund numbers are also unchanged." U.S.-domiciled and Cayman-domiciled funds are affected, but no word on whether Dublin funds will also be included in the change. The changes include the funds: Citi Institutional Liquid Reserves, Citi Institutional Cash Reserves, Citi Inst Tax Free Reserves, Citi Inst U.S. Treasury Reserves, Citi Premium Liquid Reserves, Citi Premium U.S. Treasury Reserves, Citi Cash Res, Citi California Tax Free Reserves, Citi Connecticut Tax Free Reserves, Citi New York Tax Free Reserves, Citi Tax Free Reserves, and Citi U.S. Treasury Reserves, plus the Cayman-domiciled Citi Premium Liquid Reserves, Ltd, Citi Institutional Cash Reserves, Ltd, and Citi Institutional Liquid Reserves, Ltd.

BlackRock also wrote recently, "Effective May 4, 2009, the names of the money market funds listed below will be changed. Please note that each Fund will continue to be managed in the same conservative fashion, with no change in investment objective." The funds changing include: Merrill Lynch Treasury Fund, Merrill Lynch Government Fund, Merrill Lynch Institutional Fund, Merrill Lynch Institutional Tax-Exempt Fund, and Merrill Lynch Premier Institutional Fund will have new CUSIPs and will replace Merrill Lynch with FFI in front of the new name. Merrill Lynch Retirement Reserves Money Fund, Merrill Lynch Ready Assets Trust, Merrill Lynch US Treasury Money Fund, ML Ready Assets US Treasury Money Fund, and Merrill Lynch USA Government Reserves will all remove the Merrill Lynch from the official fund names.

Moody's Investors Service put out a press release yesterday afternoon entitled, "ICI and G30 recommendations would add strengths -- and challenges -- to money market funds, which says, "Two private sector groups have made substantive proposals aimed at strengthening the safety attributes of money market funds that would, if adopted by the U.S. Securities and Exchange Commission (SEC), likely make the economics of managing these funds even more challenging, Moody's Investors Service concludes in a new report."

The release was based on a new Moody's report entitled, "Money Market Fund Industry: Weighing Recommendations by Working Groups of ICI and G30," which says, "According to the rating agency, the depth of the changes implied by both proposals -- one from the Money Market Fund Working Group (MMWG) of the Investment Company Institute (ICI) and the other from the Group of Thirty's (G30) Working Group on Financial Stability -- point to a likelihood that money market fund managers will likely soon be facing some combination of a) higher costs, b) investment constraints, and c) greater regulatory oversight and reporting. Moody's believes that these proposals could be a catalyst for further competitive pressures and industry consolidation."

The release continues, "The respective working groups of the ICI and the G30 have outlined two paths with important implications for a host of issues that affect the money market fund business. The proposals are responses to the liquidity crisis in the short-term credit markets that persisted in the weeks following The Reserve Primary Fund 'breaking the buck' in September 2008."

"The SEC also has promised a broad review of money market fund structure, and has informally suggested that the adoption of a floating NAV could ease large investors' and sponsors' sensitivity to the dual promise of constant NAVs and liquidity. Such a shift in attitude could move some money market funds away from amortized cost valuations and a stable $1.00 NAV. Current regulation generally contains provisions related to credit quality, maturity and diversification." VP/Senior Analyst Dagmar Silva adds, "Liquidity, on the other hand, has not been a particular focus of the pre-crisis regulation, but the recent market crisis has highlighted liquidity as a great challenge for money market funds."

She continues, "Both the ICI and G30 proposals lead toward reinforced liquidity for funds, but at a cost to yields. In simple terms, the ICI's proposals affect yields primarily through investment constraints, while the G30's proposals imply both investment restrictions and higher costs. Investors would naturally be affected, and key questions remain regarding their appetite for funds with improved liquidity and credit quality, but with likely lower yields.... Of course, this is still a fairly fluid situation, and the SEC would first have to adopt regulations. Ultimately, it could pick out parts from either or both of the ICI and G30 proposals."

The release adds, "Moody's believes that sponsors of money market funds would need to take on more responsibilities with regard to supervision, compliance and disclosure." "Profitability would likely be further affected," says VP/Senior Credit Officer Matthew Noll, "but large scale, well-capitalized players should best be able to manage the changes if and when they are finally implemented. The "extent of consolidation" and the "expected timeframe of implementation of any such regulations is also unclear," notes Noll, "but we plan to follow developments carefully."