Daily Links Archives: March, 2009

ICI's "Trends in Mutual Fund Investing January 2009" says, "Money market funds had an inflow of $59.52 billion in January, compared with an inflow of $109.35 billion in December. Funds offered primarily to institutions had an inflow of $67.62 billion. Funds offered primarily to individuals had an outflow of $8.10 billion." Taxable money fund assets rose from $3.341 trillion to $3.409 trillion in January while Tax-Exempt money fund assets fell from $491.5 billion to $486.2 billion. Liquid assets of stock funds rose from 5.2 percent to 5.8%.

Henderson Global Funds files to launch U.S. Money Market Fund. It seems yet another new money fund launch is pending. Henderson Global Funds new filing says the fund will invest as part of a a "master-feeder" structure. "The Fund will seek to achieve its investment objective by investing substantially all of its investable assets in a master fund, the State Street Money Market Portfolio, a series of a separately registered open-end management investment company called the State Street Master Funds.... SSgA Funds Management, Inc. is the investment adviser of the Master Portfolio," says the prospectus. Henderson currently only offers an International Equity Fund. No date has been given for the funds' launch yet, but the three classes (A, B, and C) will charge 0.40%. In other news, Evergreen Investments reopened its Evergreen Treasury Money Market Fund and Evergreen Institutional Treasury Money Market Fund "to new purchases and exchanges, effective Tuesday, March 10, 2009."

"'Stable' Funds in Your 401(k) May Not Be" says The Wall Street Journal. The paper writes, "Investors are pouring billions into stable-value funds -- just as these popular retirement-plan investments are looking less stable than usual.... [S]table-value funds are getting rattled by some of the same forces that have upended the broader financial system.... In rare cases, investors can lose money in a stable-value fund." WSJ adds, "All this comes as even more investors are turning to stable-value funds for protection.... Stable-value funds held about $520 billion at the end of last year, up 25% from the end of 2007, according to the Stable Value Investment Association, which represents fund managers and retirement plans that offer the products. The funds generally receive little scrutiny. But with extreme stress in fixed-income markets and growing questions about the financial stability of firms providing wrap contracts, many employers are now asking questions about their stable-value funds, investment advisers say."

"SEC Chairman to Ask for Greater Control" writes The Washington Post, saying, "Securities and Exchange Commission chairman Mary Schapiro plans to tell lawmakers tomorrow ... in a scheduled appearance before the Senate Banking Committee ... that the SEC plans to harmonize regulations governing investment advisers and brokers and tighten rules surrounding money market mutual funds, according to a copy of her testimony, which was obtained by the Washington Post." Also, see Forbes' "ADP trims fiscal 2009 profit, revenue expectations", which says, "ADP attributed the lowered earnings forecast to a charge of $15 million, or 2 cents per share, due to a loss from money it put into the Reserve Primary Fund. The large money-market mutual fund collapsed last fall, exposing clients to losses in a normally safe-harbor investment.... The amount reflects an updated figure that the money fund's manager cited on Feb. 26 in announcing it had set up a reserve to cover legal fees and claims." Finally, see Structured Credit Investor's "SIV asset sale scheduled", which says, "Standard Chartered's SIV, Whistlejacket, has entered into restructuring and portfolio sale agreements with Goldman Sachs. The SIV's restructuring process looks set to mirror...."

Barron's features "Money-Market Funds to Get More Safeguards", which says, "The Washington-based Investment Company Institute, the mutual funds' trade group, last week released a list of reforms proposed by its money-market-fund working group, formed last fall after the Reserve fund debacle, and said it was lobbying for the extension so members could have time to implement the recommendations.... The proposals include setting minimum levels of liquidity, shortening duration, or the length of maturities, and avoiding securities rated single-A or below, or some equivalent, by the credit-rating agencies. The industry hopes this guidance will set the framework for discussion on reforms expected from the Securities and Exchange Commission." The piece quotes Joe Lynagh, portfolio manager at T. Rowe Price (who will be profiled in the April issue of Money Fund Intelligence), "In general, the fund industry polices itself very well, and money markets are a vital part of the overall flow of credit." Also, see the Bond Buyer's "Geithner Eyes VR Liquidity Backstop", which discusses the "possibility of a liquidity backstop for variable-rate debt, to 'reinforce' some improvement that has occurred in the municipal market." Finally, see Bloomberg's "Exxon, Chevron Count Every Dollar to Protect $40 Billion Hoard".

Reuters writes "Fed's Rosengren: Money funds less reliant on Fed", which says, "Money market funds have begun to reduce their reliance on the U.S. Federal Reserve program intended to help them, a top Federal Reserve policy-maker said on Monday." The article quotes Boston Federal Reserve Bank president Eric Rosengren in "Testimony at the Field Hearing of the Committee on Financial Services of the U.S. House of Representatives," "Prime money-market funds have tended of late to have a net inflow of funds, which has helped stabilize short-term credit markets. Correspondingly, money markets have reduced their reliance on the Fed liquidity facility that was designed to help them." See also, Moody's rating action on UCM Institutional Money Market Fund, which says, "Moody's Investors Service has today confirmed the B fund rating of UCM Institutional Money Market Fund. Moody's will also withdraw the rating as the fund has been liquidated at a net asset value of $1.00 per share."

Chuck Jaffe's "Offshore CDs Are a Risky Solution To Low-yield Savings Woes" answered a reader question about Millennium Bank, located in St. Vincent and the Grenadines' "high-yield certificates of deposit carrying a 6.75% interest rate". Jaffe's MarketWatch column answers, "The obvious issue with Millennium Bank is that offshore banks carry no Federal Deposit Insurance Corp. protection and little recourse for domestic investors if things go wrong." He quotes Peter Crane, "Right now, with the Fed funds rate at 0.25%, anything over 3% should raise a major red flag.... And then you are going offshore so you lose any semblance of protection, so that's another major red flag." In other news, see "Moody's assigns Aaa/MR1+ rating to Western Asset Management Fund," which says the new Dublin-based ("offshore") Western Asset Euro Government Liquidity Fund obtained Moody's highest rating last Friday.

ICI reports money market fund assets fell $42.89 billion to $3.863 trillion in the week ended March 18. The release says, "Taxable government funds decreased by $29.80 billion, taxable non-government funds decreased by $12.99 billion, and tax-exempt funds decreased by $100 million.... Assets of institutional money market funds decreased by $39.11 billion to $2.502 trillion. Assets of retail money market funds decreased by $3.78 billion to $1.361 trillion." While March 15 tax-related outflows likely contributed, it is also likely an indication of investors moving back into stocks. In other news, more Treasury funds have reopened to investors. Goldman Sachs Financial Square Treasury Instruments and ILA Treasury Instruments issues a filing which says, "In a Supplement dated December 19, 2008, shareholders of the funds listed above were informed that each Fund would be closed to new investments. Effective March 9, 2009, each Fund will re-open for investment." Finally, see "Moody's confirms ratings of five Lehman funds; will withdraw ratings," "Moody's confirms ratings of four Reserve funds; will withdraw ratings," and Bond Buyer's "ICI Aims for Money Fund Improvements".

Federated Launched "Money Market Matters" Site, which is "designed to provide investors and clients with current information about Federated's money market funds as well as items of interest that relate to developments in the industry." The site also features a new "white paper" entitled "The Truth About Money Funds". It says, "As Congress prepares to consider proposals to reform the financial regulatory structure, the regulation of money market mutual funds will likely be a topic of discussion. Although money funds play a vital role in the financial markets, their activities and operations are not well understood and questions may arise as to how they should be regulated. This paper provides information for lawmakers and others on money funds, their role in the financial markets, and the regulatory regime that governs them. As described more fully herein, money funds are short-term investment vehicles that contribute efficiency, liquidity, and safety to the financial markets. They are highly regulated under existing law and have a proven track record as safe investments. Some commentators have mistakenly suggested that money funds function like banks and should be regulated as such. This paper shows that such a view fundamentally misconceives the nature of money funds and would result in inappropriate regulation of money funds to the detriment of U.S. financial markets." See also: Investment News' "Industry group wants money fund safeguards", ignites' "ICI's Money Fund Proposal Presents Few Hurdles", and "Fitch Affirms Marshall Government Money Market Fund at 'AAA/V1+'".

WSJ writes "Money-Fund Effort Seeks Transparency", giving some hints at the pending ICI Money Market Working Group report. The article says, "The Investment Company Institute trade group will be recommending Wednesday some changes in money funds, in a bid to make them more transparent, liquid and better prepared to handle potentially large redemptions." It also says the report "suggests that all money funds be required to publish their investments on a monthly basis," "that funds disclose the type of clients they have," and says, "For the first time, money funds would be required to hold a cash balance of 5% to 20%, which would comprise Treasurys and other securities that can be redeemed within one to seven days." ICI also recommends reducing "the average weighted maturity of money funds' investments from 90 days to 75 days." Look for more when the report is officially released in coming days. See also, NY Times' "Mutual Funds Move to Restore Investor Confidence", AP's "Industry recommends money-market fund safeguards", and the press release "J.P. Morgan Supports Money Market Working Group Recommendations".

Bloomberg's "Coca-Cola Flees Commercial Paper for Safety in Bonds" says Coke "is fleeing commercial paper for the safety of long-term bonds. The world's largest soft-drink maker joins a growing number of borrowers reducing their dependence on the debt this year." It quotes our Peter Crane, "People want to push down their debt levels, build up their cash war chests and have lots of sources of funding, just in case one of the legs of their stools gets kicked out". Bloomberg also quotes WellPoint Chief Financial Officer Wayne DeVeydt, "What we've really done is hedged against another crash in the CP market.... If you have another run on the bank, which is really what happened to many companies in the fourth quarter of last year, you're not going to get access to other long-term debt." See also, Reuters' "Fund firms drop demand for money market liquidity", which says, "European fund firms, who were calling on the region's central banks for greater liquidity for money market funds, have quietly dropped their demand as flows to the sector have improved, a senior fund manager said." The article cites Kathleen Hughes, managing director and head of global liquidity EMEA at JP Morgan Asset Management.

"Federally-Insured Money Market Funds and Narrow Banks: The Path of Least Insurance", is a recent paper written by Mercer Bullard of the University of Mississippi School of Law. Its abstract says, "In September 2008, the Treasury created a temporary insurance program for money market funds, which had never previously been covered by government insurance. This essay argues that this program should be made permanent. To the extent that deposit insurance is intended to protect cash accounts that provide a stable foundation for our payments system, similar insurance should be made available to MMFs, which serve this function while presenting less risk than bank deposits. The argument that only bank accounts should be insured because the liquidity they create for long-term ventures otherwise would dry up might once have made sense, but it no longer reflects modern financial markets where liquidity creation has become broadly diversified. Deposit insurance also should be made available to bank deposits backed by short-term assets (like MMFs) that would be relieved of burdens to which other bank deposits are subject, such as the Community Reinvestment Act."

USA Today's "Economy doesn't leave money market funds unscathed" says, "Money funds are a fixture of today's financial marketplace. Individual investors use them to park cash when moving between investments. Big institutions use them to collect interest on money they may hold only overnight. Consumers put savings in to earn a little interest, in accounts that offer checking privileges, too. But all is not well with the historically reliable money fund industry." Columnist John Waggoner gives an overview of recent issues and quotes Cathy Roy, CIO of fixed income Calvert, "The money market is the financing vehicle for every financial institution out there.... What is key now is to make sure that funds aren't reaching for yield -- which is what got them into this mess in the first place." He also quotes the SEC's Doug Scheidt, "The fact that there have been deep pockets has substantially helped keep problems from trickling down to shareholders." Scheidt speculates, "It could be that there's a market for insured and uninsured money funds." Finally, USA Today quotes our Peter Crane, "I thought (Bernanke's speech) was fabulous news for money funds and money fund investors. It means radical change is off the agenda." Finally, note Fed Chairman Ben Bernanke said in a 60 Minutes interview last night, when asked about bright spots in the government's interventions to date, said, "We're seeing progress in the money market mutual funds."

WSJ's "Corporate-Cash Umbrellas: Too Big for This Storm?" writes "The nonfinancial firms in the Standard & Poor's 500-stock index have a total of $811 billion in cash and marketable securities on their books, calculates Goldman Sachs. That's just shy of a record high in nominal terms and up $43 billion from the depths of the financial crisis last fall." The article continues, "Cash is not trash, of course; the natural urge to set a little money aside for a rainy day feels urgent in a recession. And some companies would take a big tax hit if they brought home the cash earned by overseas operations. But according to Strategas Research Partners, 168 out of the 419 nonfinancial firms in the S&P 500 have at least $1 billion in cash apiece, and 16 have more than $10 billion each. Exxon Mobil has $32 billion in cash, Cisco Systems has $29.5 billion, Apple $25.6 billion and Johnson & Johnson $12.8 billion. Such multibillion-dollar balances are more than a rainy-day fund; they're a 100-year-flood fund."

ICI's weekly Money Market Mutual Fund survey shows assets increasing a mere $461 million to $3.906 trillion for the week ended March 11. Institutional funds declined by $10.7 billion to $2.541 trillion while Retail funds increased by $10.7 billion to $1.365 trillion. Government Institutional funds (including Treasuries) led the decline, falling $9.7 billion to $1.166 trillion. Prime Institutional funds fell by $2.4 billion to $1.183 trillion, but Tax-Exempt Inst funds rose by $1.8 billion to $192 billion. Government retail funds rose $1.8 billion to $251 billion, Prime retail funds rose $9.2 billion to $824 billion, and Tax-exempt retail assets fell by $0.4 billion to $290 billion.

The Wall Street Journal writes "Borrowing to Save", which says about corporate treasurers, "Having cash on the balance sheet -- previously unfashionable -- is now all the rage. With banks reining in lending, companies have rushed to lock in financing from the bond market while they can: non-financial companies have issued over $200 billion of debt in the U.S. and Europe so far this year." The Journal adds, "Two years ago, building cash piles would have been a red rag to an activist investor. But in the current environment it is more likely to be viewed as an insurance premium. With very little visibility on earnings, and debt maturities to meet in the coming years, borrowing cash now could ensure a company's survival if bond market investors go on strike." See also, Bloomberg's "General Electric Rises as S&P's Ratings Cut Eases Concern", which says, "S&P left GE and GE Capital's commercial paper ratings at A-1+ and said the rating for debt sold backed by the Federal Deposit Insurance Corp. remains AAA."

SmartMoney's "Protect Your Money: Best Places for Cash" says, "Investors are sitting on a record amount of cash, only to wonder what the heck to do with it. The credit crisis shook the bond market right along with stocks, leaving cash as the most reliable place to seek short-term shelter. There's nearly $4 trillion in money-market funds, and bank deposits grew 11 percent last year, to almost $8 trillion, as savers bailed out of other investments. And cash isn't losing its cachet anytime soon: In response to the market meltdown and recession, the savings rate is expected to grow to more than 5 percent in 2009, higher than it has been in 15 years." It adds, "But the financial crisis has also made the calculus of cash more complicated than ever. The Federal Reserve has cut rates and kept them low, making it harder for investors to earn a decent return."

Bloomberg writes "Bernanke Proposes Less Restrictive Rules for Money Funds", which says, "U.S. Federal Reserve Chairman Ben S. Bernanke said money-market mutual funds may need more regulation, though he didn't endorse rules backed by former Fed chief Paul Volcker that would treat the industry more like banks.... The comments signal Bernanke favors less aggressive rules for money funds than those recommended by a group including Volcker, an adviser to President Barack Obama. The group proposes regulating money-market funds more like banks, with reserve requirements and mandatory federal insurance." Bloomberg reporter Chris Condon wrote, "ICI spokesman Gregory Ahern today welcomed Bernanke's remarks without commenting on the specific proposals." Ahern said, "We agree with Chairman Bernanke that money-market funds play a crucial role in the U.S. economy and appreciate his comments on the need to increase the resiliency of the money markets, generally, and money-market funds, in particular." The article adds, "The ICI in November formed a panel headed by Vanguard Group Inc. Chairman John J. Brennan to develop recommendations to improve the money-market fund industry. It is due to deliver its report by the end of March."

ICI President Paul Schott Stevens presented his "Proposal For Regulatory Reform" to the Senate Committee on Banking. Under the section, "Evolution and Current Significance of Money Market Funds," he says, "Money market funds are registered investment companies that seek to maintain a stable net asset value (NAV), typically $1.00 per share. They are comprehensively regulated under the Investment Company Act and subject to the special requirements of Rule 2a-7 under that Act that limit the funds' exposure to credit risk and market risk. These strong regulatory protections, administered by the SEC for nearly three decades, have made money market funds an effective cash management tool for retail and institutional investors. Indeed, money market funds represent one of the most notable product innovations in our nation's history, with assets that have grown more than 2,000 percent (from about $180 billion to $3.9 trillion) since Rule 2a-7 was adopted in 1983. Money market fund assets thus represent about one third of an estimated $12 trillion U.S. 'money market,' the term generally used to refer to the market for debt securities with a maturity of one year or less."

IMMFA Appoints Travis Barker Chairman. The London-based Institutional Money Market Funds Association, or IMMFA, has announced the appointment of Travis Barker of HSBC Global Asset Management as its new Chairman. He succeeds Donald Aiken with immediate effect. Barker comments, "A viable and strong association such as IMMFA is more important than ever to build upon the credentials of our industry. I look forward to working with member firms, fellow trade associations, regulators and central banks to enhance the operation and efficiency of the money markets in which we invest, and upon which the economy depends.... I pay tribute to the work of Donald Aiken, under whose Chairmanship our members' assets grew from E175 billion to E444 billion. Donald achieved a number of significant policy advances on behalf of the money market fund industry, and provided steady leadership throughout the credit crunch." In other news, see "Important Notice Regarding Resrv Partners."

Click here for details on the TEXPO 2009 Conference, March 29-31 in Galveston Island, Texas. TEXPO is hosted by the Alliance of Texas Treasury Associations. Crane Data's Peter G. Crane, and Invesco AIM's Lyman Missimer III and William E. Hoppe, Jr. will present "Money Markets and Money Funds: Is It Safe to Go Back in the Water?" Other spring Treasury conferences include: Treasury Management of New England (TMANE), May 6-8, 2009, in Boston, where Peter Crane will present "The Shifting Landscape of Money Market Funds: Doing Your Diligence and Avoiding Landmines;" the Windy City Summit, May 20-22, 2009, in Chicago; and the New York Cash Exchange (NYCE), May 27-29, 2009, in New York, where Pete Crane will lead a panel with Dreyfus' Lou Geser, Federated's Debbie Cunningham, and SSgA's Jeff St. Peters entitled, "Near-Death Experience: Learning from the Turmoil in Money Market Mutual Funds." Finally, mark your calendars for Crane's Money Fund Symposium, which will be held August 23-25, 2009, at the Renaissance Hotel in Providence, R.I. Watch for the website to launch in coming weeks, and e-mail Pete for more info and for the preliminary agenda.

ICI Reports Money Fund Assets, saying, "Total money market mutual fund assets increased by $17.84 billion to $3.906 trillion for the week ended Wednesday, March 4.... Taxable government funds increased by $7.31 billion, taxable non-government funds increased by $8.27 billion, and tax-exempt funds increased by $2.26 billion." ICI says, "Assets of retail money market funds increased by $10.81 billion to $1.354 trillion" and "assets of institutional money market funds increased by $7.03 billion to $2.552 trillion."

"Legg Mason Eliminates All SIVs From Money Market Funds", the company said in a press release and conference call this morning. It says, "Legg Mason, Inc. today eliminated all of the remaining securities issued by Structured Investment Vehicles and other similar conduits (SIVs) from its money market funds. The Company and the funds separately sold a total of $1.8 billion of par value SIV securities from five different issuers. Of this amount, $1.4 billion represented SIVs held by four of the Company's money market funds, $57 million in SIVs held by the company and $355 million of SIVs that had been supported through a total return swap with a major bank. As a result of these transactions, there was a net cash outflow to the Company of $1.2 billion. The Company will retain $49 million in SIVs (current carrying value) from two issuers that it has been carrying on its balance sheet." Legg Mason Chairman and CEO Mark R. Fetting says, "With the sales announced today, our money market funds are now completely SIV-free. We are pleased that our business teams were able to resolve this issue and protect our money market franchise while our investment teams have focused on its goal of providing principal stability, credit quality, and current income. We have done what we said we would do." The conference call replay may be heard by dialing 888.266.2081 and using conference ID: 1340698. See also, "Smith Barney to end exclusivity contract with Legg Mason." In other news, Nuveen Investments will host an update on "Auction-Rate Securities Preferred Shares Update" this morning at 11am (10am Central).

"J.P. Morgan to reopen Treasury Plus fund" writes MarketWatch. The Sam Mamudi article says, "J.P. Morgan Funds, a unit of J.P. Morgan Chase & Co., will on Thursday reopen a money-market fund that invests in Treasurys. The move reverses a recent trend of asset managers closing their Treasury money-market funds because of record demand and historically low rates. But a slackening in the demand, as investors head out and into government and corporate debt, and steadily rising rates, spurred in part by the government issuing more debt to finance its attempts to stabilize financial markets and stimulate economic growth, have eased the pressures facing managers." It quotes Peter Crane, "You can feel the momentum away from Treasurys.... You don't have to keep the velvet rope out front if there's plenty of room in the club." The MarketWatch piece says, "Since Dec. 10, Treasury money-market funds have seen net outflows of $100 billion, according to Crane Data. In the same period government money-market funds have seen net inflows of $100 billion, while prime money-market funds have seen net inflows of $110 billion."

"Western Asset Institutional Government Money Market Fund's New Hub Spoke Funds Rated 'AAAm'" says S&P. The release states, "Standard & Poor's Rating Services said today that it assigned its highest principal stability fund rating of 'AAAm' to the Government Portfolio, Western Asset Institutional Government Money Market Fund - Premium Class; and to Western Asset Government Money Market Fund Ltd. - Class 1, 2, and 3. At the same time, we affirmed our 'AAAm' rating on the Western Asset Institutional Government Money Market Fund, which is changing the name of these shares from 'Class A' to 'Institutional Class.'" The release adds, "While the Western Asset Institutional Government Money Market Fund is a U.S.-domiciled money market fund, the Western Asset Government Money Market Fund Ltd. is an open-end, diversified mutual fund incorporated as an exempted company in the Cayman Islands." See also S&P's "Lone Star Investment Pool Liquidity Plus Fund Ratings Changed To 'AAAm' Principal Stability Fund Rating" and "Colorado And Florida Surplus Asset Fund Trusts Placed On CreditWatch Negative". In other news, see "Institutional Cash Distributors (ICD) Client Assets Surge Following Government Actions and Platform Enhancements."

Today at 1:00 pm EST ACA Compliance Group will be hosting a "Securities Lending Practices" Webcast, with Nick Prokos, Managing Director of ACA Compliance Group and Tom Poppey, Senior Vice President of `Brown Borthers Harriman & Co.. The session, which costs $225 to attend, will discuss the current state of the securities lending industry. The introduction says, "During last week's NICSA Annual Conference in Miami, Gene Golkhe, Associate Director of the SEC's Office of Compliance Inspections and Examinations (OCIE), indicated that the SEC is taking a closer look at mutual fund securities lending programs, particularly those risks associated with the reinvestment of cash collateral."

Today's Wall Street Journal writes "Low Yields Join Credit Worries as Big Issues for Money Funds", which says, "[T]he roughly $4 trillion money-fund industry has stabilized and seen assets return, aided in part by temporary government backing. However, 2009 has brought a host of new issues that are keeping money funds under fire. Record-low interest rates and increased default risk from the credit crunch have left money-fund managers scrambling for creative ways to safely maintain attractive yields. There's soul-searching among fund firms -- especially smaller ones -- about whether they want to stay in the money-fund business.... There's even talk about finding ways for money-market funds to not target net asset value so strictly -- allowing for more flexibility to lessen the fallout from any NAV fluctuations." See also the WSJ's video "Roger Merritt of Fitch Ratings speaks to Diya Gullipalli".

"Money market funds: Just how safe a haven?" asks The Eagle Tribune of North Andover, Mass.. The article says, "Money market funds are not the plain cash box-spring that they've been popularly believed to be, and now it's all the more important to give yours more scrutiny. Although no one is promoting worry, investors should realize how critical recent government action may have been in preserving their money. And now, perhaps more than ever, anyone with a money market fund, or thinking of putting money into one, should know the differences between them, what to look for, and have a keen eye on what could happen if and when the government lifts its current programs to support them." The piece cites Pete Crane, saying, "The temporary government guarantee program has stabilized money market funds. Assets grew by 20 percent in 2008 and kept growing, even after the Reserve Primary fiasco." It quotes Crane, "In the kingdom of the blind, the one-eyed man is king.... Flat is the new up." In other news, see Friday's LA Times story, "Money fund yields keep falling, but cash stays put".

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