Daily Links Archives: April, 2009

"Standard & Poor's Launches 'AAAm' Principal Stability Fund Risk Metrics in Europe," says a press release issued by S&P yesterday. The new risk metrics are "intended to enhance the level of detailed information available to European money market fund investors." Credit analyst Andrew Paranthoiene says, "The 'AAAm' risk metrics aim to provide investors and fund managers with greater clarity on our view of the credit quality of the fund, as well as information regarding the portfolio composition, maturity distribution, net assets, monthly growth, and performance of 'AAAm' ... funds." The release adds, "Based upon Standard & Poor's weekly information collected on its 'AAAm' rated funds, the risk metrics are the product of a quantitative work undertaken that can be utilized by market participants as a benchmarking tool to better assess the risks of over 130 U.S. dollar, euro, and British pound sterling-denominated European and offshore funds." In other news, ICI released its "Trends in Mutual Fund Investing March 2009", which shows that money fund assets decreased by $74.2 billion in March to $3.816 trillion. YTD through 3/31, money fund assets have decreased by $16.4 billion.

"Better returns expected from latest SIV sale" writes FT.com, saying, "Investors will on Wednesday bid for up to $6bn of assets as part of the restructuring of a complex investment vehicle which collapsed last year. The receivers of the portfolio of Whistlejacket, the structured investment vehicle previously managed by Standard Chartered, are expecting to receive bids on the assets of the portfolio.... It will be one of the largest assets sales to have taken place under a SIV restructuring. The auction will fund cash payouts for investors who want them. Any unsold assets will be transferred to a new fund set up by Goldman Sachs." See also, Bloomberg's "Whistlejacket Capital SIV Asset Auction Said to Start Today".

SEC Chairman Mary Shapiro mentions money funds in yesterday's "Address to the Society of American Business Editors and Writers" speech. In a brief section entitled "Money Market Funds, Shapiro says, "Nearly $4 trillion are invested in money market funds. When the Reserve Fund broke the buck last fall, it called into question the stability of all funds and has led us to ask how we can bolster the resilience of these funds that have become so important to our economy and to investors. This June, we will propose enhancements to the rules governing the credit quality, maturity and liquidity provisions that currently apply to money market funds. In addition, we are reviewing whether more fundamental changes are needed to protect investors from runs on the funds, including floating rate net asset values."

ICI's latest weekly "Money Market Mutual Fund Assets" shows a decrease of $11.34 billion to $3.806 trillion for the week ended April 22. This represents the fifth weekly drop in the past 6 weeks and pushes money fund asset totals into the red year-to-date. While this week's drop was clearly tax-related -- retail assets declined by $16.30 billion to $1.311 trillion (representing 34% of total money fund assets) while institutional assets rose by $4.96 billion to $2.495 trillion -- it's also clear that money fund assets are beginning to face a stiff headwind. Year-to-date, money fund assets have declined by $23.8 billion, or 0.6%. Over the past 6 weeks money funds have lost over $100 billion, or 2.6%. See also the transcript of SEI's earnings and discussion of SIV issues (on the website Seeking Alpha).

On Tuesday, May 5, the American Enterprise Institute (AEI) will host an event in Washington, DC, "Do Money Market Funds Have a Future in the New Financial System?". The event description says, "At the height of the crisis last year, some investors fled money market mutual funds, worsening the strains in the financial system. In an effort to restore market confidence and ensure short-term liquidity, the Treasury Department intervened to guarantee these investments, and the Federal Reserve made credit available that allowed funds to meet heavy redemption requests and also provided short-term credit directly to borrowers in the commercial paper market. Will money funds survive without such support? If not, how should they be regulated in the future? A new report by the Investment Company Institute (ICI) proposes new liquidity and maturity standards to correct this market." It adds, "ICI chief economist Brian Reid will discuss these findings. Joining Reid will be Mercer Bullard, a University of Mississippi law professor and an investment management expert; Eugene F. Maloney, executive vice president of Federated Investors, a firm that has been involved in shaping the legal landscape for money market funds; and Peter J. Wallison, who holds AEI's Arthur F. Burns Chair in Financial Policy Studies. AEI's Vincent R. Reinhart will moderate."

Bloomberg's article "Ameritrade Profit Drops 29% as Interest Revenue Falls" mentions money funds, saying, "TD Ameritrade will seek to move between $10 billion and $14 billion of customers' holdings in money-market mutual funds into money-market deposit accounts during the next year. Tomczyk said the plan will give customers a higher yield on deposits and a guarantee from the Federal Deposit Insurance Corp. For the company, the move will help fuel earning growth in fiscal 2010, he said." Bloomberg quotes Friedman Billings Ramsey Analyst Matt Snowling, "We view the decision as a significant enhancement to TD Ameritrade's earnings potential." It adds, "The new cash- management plan may add about 9 cents a share to earnings, said Snowling, who raised his 12-month target for TD Ameritrade stock to $17 from $13." Note also that Federated Investors reports quarterly earnings Thursday a.m.

William C. Dudley, President and Chief Executive Officer of the New York Federal Reserve spoke recently on "The Federal Reserve's Liquidity Facilities" at the Vanderbilt University Conference on Financial Markets and Financial Policy. He said, "First, we addressed the acute seizing up of inter-bank financing markets. For banks, we introduced the Term Auction Facility in December 2007 and for the primary dealers, the Term Securities Lending Facility and Primary Dealer Credit Facility in March 2008.... Second, we expanded our provision of short term financing beyond banks and dealers in order to alleviate constraints on highly rated corporate borrowers. The two most noteworthy examples of this are the Commercial Paper Funding Facility, which was introduced in October 2008, and the Term Asset-Backed Securities Lending Facility.... Third, once policy rates were near the zero-bound, we expanded the type of assets that the Fed purchased. In order to put downward pressure on general longer term borrowing rates, particularly mortgage rates, the Federal Reserve has purchased the debt of the GSEs, namely, Fannie Mae and Freddie Mac and the mortgage-backed-securities they issue, and, more recently, longer-term Treasuries." Dudley asks, "So why has the Fed done so much in terms of special programs?" He says, "As I see it, there are four major reasons behind the dramatic expansion of the Fed's liquidity programs: To provide liquidity to banks and dealers in order to slow down the deleveraging process. To expand the balance sheet capacity of the private sector to counteract the shrinkage underway in the non-bank financial sector. To restore and improve market function. To ease financial market conditions."

Moody's rates Aaa/MR1+ two Blackrock constant NAV money market funds, according to a press release issued Friday. It says, "Moody's Investors Service has assigned Aaa/MR1+ money market fund ratings to the Institutional Cash Series plc -- Institutional US Treasury Fund and the Institutional Cash Series plc -- Institutional Euro Government Liquidity Fund. The funds form part of the Institutional Cash Series plc, an investment company with variable capital, organised as an umbrella fund under the laws of Ireland." Senior Vice President Kathryn Kerle says, "The ratings reflect Moody's expectation that the funds will employ very conservative investment strategies to achieve their objectives of preserving principal and providing liquidity. Moody's also believes that the funds will maintain very high credit quality." She "expects the funds to maintain a weighted-average maturity of 60 days or fewer" and, "Moreover, as the funds are not expected to invest in securities with a remaining maturity of more than 397 days, their exposure to spread duration risk should be very limited." The release adds, "According to the investment manager, both funds will invest primarily in government securities, US Treasury bills (in the case of the US Dollar Fund) and direct obligations of France, Germany or The Netherlands (in the case of the Euro Fund), or reverse repo transactions collateralised by these securities. Given Moody's expectation that the funds will invest in either overnight repo or direct obligations of highly-rated governments, the funds should be very liquid."

The registration page is now live for the inaugural Crane's Money Fund Symposium, which will be held August 23-25, 2009, at the Renaissance Hotel in Providence, Rhode Island. Crane Data's new annual conference will bring money fund managers, issuers, investors and servicers together to exchange ideas, to network, and to learn about the latest investment strategies, business tactics, and news impacting the money market fund marketplace. Speakers to date 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 Paul Schott Stevens, 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. Free post-conference online money fund trading portal demos and Money Fund Wisdom software training workshops are also offered. Click here for the agenda or e-mail Pete for the full PDF brochure. Registration is just $500 and includes all meals, refreshments, and a Rhode Island "clambake style" dinner. The special room rate at the Renaissance Providence is $169 a night for attendees that sign up before July 29. Money Fund Symposium sponsorships are almost sold out, so be sure to register quickly to reserve your spot. We hope to see you in Providence!

The Wall Street Journal writes "Failed Fund Keeps Investors Waiting, saying, "On Tuesday, Reserve Management Co. said it will pay back another $2 billion of the fund's assets. But after that payout, there will still be $4.8 billion of investor money sitting in the defunct fund -- and the fund has said it will hold on to about $3.5 billion of assets to cover costs and expenses, including the cost of the more than 30 lawsuits it faces. The fund has said it will for the time being return 91.72 cents for each dollar invested in the fund -- a far cry from money-market funds' promise of maintaining $1 share values, but also below Primary Fund's own valuation of 97 cents a share. For investors, the holdup means that more than six months after the fund first broke the buck they are still waiting to get back cash they thought was held in a liquid and safe investment." (See The Reserve's release here. Crane Data estimates that the eventual payout will be $0.98 a share.) Also, `ICI reported a drop in money market fund assets of $28.49 billion to $3.818 trillion. The trade group's weekly numbers said, "Assets of retail money market funds decreased by $7.24 billion to $1.328 trillion ... Assets of institutional money market funds decreased by $21.25 billion to $2.490 trillion." Crane Data expects money fund assets to decline sharply over the next two to three weeks as income tax payments are withdrawn from these accounts.

Yesterday, ignites.com featured a poll and story "Low Yields Are Top Money Fund Threat",which says, "The Federal Reserve's record low interest rates are the biggest near-term threat to money market funds.... Roughly 43%, or 235 voters, said the Fed's policy of keeping interest rates at near zero is the top risk facing the funds. That made the choice the most popular in a survey tracking the top short-term challenges facing money funds. Nearly one-fourth of respondents, or 125 voters, indicated that moving a money fund's fixed $1 net asset value (NAV) to a floating $10 NAV would be the biggest challenge to the investment vehicles, putting the option in second place. Meanwhile, 17%, or 91 voters, said a fund's breaking the buck, an occurrence that would likely cause widespread investor panic, is the top risk. Further, 13%, or 72 voters, said overregulation is the biggest near-term challenge confronting such funds. The option receiving the fewest number of votes in the survey is the discontinuation of the Treasury insurance program, which expires on Sept. 18, 2009. That option garnered only 4%, or 24 votes."

Investment News writes "SEC mulls $10 a share NAV for money market funds", which says, "Several problems with money market funds could be addressed by the adoption of a $10 or floating NAV, Andrew "Buddy" Donohue, director of the SEC's Division of Investment Management, said in a speech delivered this month." IN quotes, "`I think it would do more harm than good," said Pete Crane, president of Crane Data LLC, a Westborough, Mass., research firm focused on the $3.8 trillion money market fund industry. "What would investors do when the NAV drops to $9.99? Investors don't like it when the NAV goes down. I don't see what starting the run on the funds earlier actually solves.... It would present a Y2K-type challenge. It's hard to say what it might do to money market fund industry. By tinkering with the formula, you might end up with a disaster," Mr. Crane said. The piece also says, "The move to a floating NAV would be detrimental to the industry, said Domenick Pugliese, partner in the New York-based Paul Hastings Janofsky & Walker LLP. Investors use money market funds as alternatives to bank accounts, and keeping the NAV stable is important to them, he said."

Crane Data's new Money Fund Wisdom software is mentioned in an article on TheMutualFundWire.com entitled, "A Money Fund Watcher Shares His Wisdom". The piece says, "Peter Crane is about to expand his operation with a new money market database service. The Crane Data president and founder confirmed that he will launch Money Fund Wisdom next month, targeted at money market fund managers and large shareholders of those funds." MFWire quotes Crane, "People have been looking for an alternative means to set up custom universes of [money market] funds for queries. Money Fund Wisdom allows users to build custom peer groups." Finally, the article adds, "Wisdom, which is still in beta, currently uses monthly data, but Crane aims to move to daily money fund data soon."

DB Advisors will host a webcast on "ICI Recommendations for Money Market Funds" on Thursday, April 16, 2009 at 1:00pm. The presentation will be made by Kevin Bannerton, Head of Distribution for Liquidity Management, and Joe Benevento, Head of Portfolio Management for Liquidity Management. The description says, "The Investment Company Institute (ICI) recently issued a comprehensive set of recommendations for money market funds. Aimed at improving the overall stability of money market funds, the recommendations cover a wide range of issues that are relevant to establishing best practices for the industry, including: Liquidity requirements, Portfolio maturity limitations, Enhanced credit analysis, Assessment of client risk, and Government resources and programs." DB says, "Please join us as we examine the Institute's recommendations and their implications for money market fund sponsors and their investors. We will also review the current environment in the context of liquidity management."

"Money fund guarantees extended" in the Arizona Republic says, "Your money is safe until mid-September. The Treasury Department recently extended its guarantee program for money-market mutual funds, protecting the investments through Sept. 18 in an effort to help stabilize the financial markets. The program was set to expire April 30. The latest move means more than $3 trillion in money-market fund assets will be backed by Uncle Sam. The funds pay fees equal to 1.5 basis points (0.015 of a percent) of their assets for this protection.... [T]he vast majority of money-market funds are participating." The article cites Crane Data's Money Fund Intelligence. In other news, see "IMMFA Welcomes ABI Money Market Consultation" and "ABI Money Market Sector Review," which discuss the Association of British Insurer's odd proposal to segment money funds in the U.K.

"Moody's confirms rating of Lehman fund; will withdraw rating" says a release issued yesterday. The ratings agency says, "Moody's Investors Service today confirmed the B/MR1+ fund rating of the Lehman Brothers US Dollar Liquidity Fund. This concludes a review of the rating, which Moody's initiated on September 22, 2008. The Fund was terminated on March 30, 2009. Shareholders of the Fund received 98% of their redemption proceeds on the date of termination." This appears to mean that the offshore Lehman fund, which suspended redemptions on Sept. 22, should now officially be classified as having "broken the buck". We're still seeking clarification, though, on whether the 2% loss is final. Moody's also wrapped up coverage of several Reserve funds, saying, "Moody's confirms ratings of Reserve funds; will withdraw ratings." It says, "Moody's Investors Service has today confirmed the fund ratings of three Reserve Management Company Inc. money market funds.... Reserve Treasury & Repo Fund: prior Rating - B, on review for further downgrade, Reserve USD International Treasury & Repo Fund: prior Rating - B/MR1+, on review for further downgrade, and Reserve USD International Treasury Fund Ltd.: prior Rating - B/MR1+, on review for further downgrade. Moody's will withdraw the ratings as the funds have been liquidated. The funds liquidated at a net asset value of $1.00 per share."

Cachematrix Completes Integration with Thomson Reuters' Treasury Workstations. The release says, "Cachematrix, the leading provider of institutional money market fund trading software for banks and financial institutions announced today that it has completed treasury workstation integrations with Thomson Reuters www.thomsonreuters.com which can be utilized by any corporation using a Cachematrix trading system licensed by banks, and a Thomson Reuters Treasury Workstation. Corporate treasurers are placing far more emphasis on using web-based electronic trading technology for investing and managing their core and operating cash. They are also looking to automate the transmission of trade data directly into their treasury workstations. This integration, which can be initiated by contacting Cachematrix or Thomson Reuters, allows for a seamless flow of pertinent trade and reporting information automatically into Thomson Reuters' Treasura or Treasury Manager solutions. This automated feed eliminates the need for manual entry from the cash manager." See also, WSJ's "Money-Market Fund Inflows $29.41B In Latest Week - iMoneyNet".

Schwab announces participation in Treasury's Temporary Money Market Fund Guaranty Program says a posting on the company's website. (Look to the right under "Special Money Funds Updates".) Schwab says, "The U.S. Department of the Treasury established the Temporary Guarantee Program for Money Market Funds. Under the Program, the Treasury guarantees the share price of a participating fund's shares outstanding as of September 19, 2008 at $1.00 per share if the fund's net assets value (NAV) falls below $0.995. Shareholders of record during a Guarantee Event who also held shares in the fund on September 19, 2008 may be eligible to receive a payment from the Treasury upon liquidation of the fund. On March 31, 2009, the Treasury announced an extension of the Program for the period from May 1 through September 18, 2009. All Schwab money funds, with the exception of the Schwab U.S. Treasury Money Fund (SWUXX) and the Schwab Government Money Fund (SWGXX), intend to participate in the extension of the program."

The article "US extends money market guarantee" from Bloomberg appeared in The Boston Globe last week. The April 1 article says, "The Treasury said yesterday that it would extend its emergency program guaranteeing money market funds through Sept. 18 from the previous deadline of this month. All funds that currently participate in the program are eligible to continue, the department said. The program, scheduled to end April 30, will be continued 'to support ongoing stability in financial markets,' it said." Bloomberg quotes Peter Crane, president of Crane Data LLC, a money-fund tracking firm in Westborough, "There's really no reason not to extend it. The fund industry clearly would like to wean itself off the program, but people are going to wait and see how fragile money markets remain until September."

"Six Government Investment Pools Advised By MBIA Asset Management Rated 'AAAm' states a press release posted Friday by S&P. The announcement says, "Standard & Poor's Ratings Services said today that it assigned its 'AAAm' principal stability fund rating to the Connecticut Cooperative Liquid Assets Securities System Plus, Michigan Cooperative Liquid Assets Securities System, New Jersey Cooperative Liquid Assets Securities System, New York Cooperative Liquid Assets Securities System, Texas Cooperative Liquid Assets Securities System, and Wisconsin Cooperative Liquid Assets Securities System. The rating, the highest assigned to principal stability government investment pools, is based on Standard & Poor's analysis of the pools' credit quality, market price exposure, and management. MBIA Asset Management, a wholly owned subsidiary of MBIA Inc., serves as the pools' investment advisor.... In addition to these newly rated pools, MBIA Asset Management is also the manager of the 'AAAm' rated COLOTRUST PLUS+ and PRIME pools and is responsible for the management of 50% of the 'AAAm' rated Puerto Rico Government Investment Trust Fund."

ICI Reports MMMF Assets and shows a decline of $22.15 billion to $3.834 trillion. While likely due to normal quarter-end seasonal outflows, this represents the third consecutive weekly decline. ICI says, "Taxable government funds decreased by $15.12 billion, taxable non-government funds decreased by $6.66 billion, and tax-exempt funds decreased by $363 million.... Assets of retail money market funds decreased by $11.01 billion to $1.340 trillion.... Assets of institutional money market funds decreased by $11.14 billion to $2.494 trillion. Among institutional funds, taxable government money market fund assets decreased by $10.76 billion to $1.132 trillion, taxable non-government money market fund assets decreased by $1.45 billion to $1.170 trillion, and tax-exempt fund assets increased by $1.07 billion to $192.59 billion." Also, see WSJ's "Stable Value? Chrysler Fund Shows Woes Still Lurking", which says, "An unnerving new crack emerged in the $520 billion stable-value fund market as an offering for workers at Chrysler LLC dropped 11%, highlighting strains in yet another supposedly safe investment."

"The Bank of New York Mellon Launches Liquidity DIRECT" says a press release. "The Bank of New York Mellon today announced the launch of Liquidity DIRECT, an innovative money market investment portal that can help institutional investors maximize liquidity and mitigate counterparty risk in an uncertain credit environment," it says. "Liquidity DIRECT unites MoneyFunds DIRECT and Liquidity Management Services, the institutional liquidity platforms offered by heritage Bank of New York and Mellon Financial Markets, LLC." The platform consists of MoneyFunds DIRECT, which "offers a wide range of money market funds," Securities DIRECT, "which provides access ... to a wide range of individual money market securities, including commercial paper, U.S. treasuries, discount notes and certificates of deposit," and `Margin DIRECT, which "provides safekeeping for posted margin balances." "`Clients have always been focused on liquidity, cash flow and their short-term investment needs, but liquidity and investment uncertainties have become critical concerns in these challenging economic times," said Jonathan Spirgel, adding "Institutional investors need access to resources that measure up to prevailing market conditions, and Liquidity DIRECT can serve as a single, complete solution for money market investments, margin positioning and account data."

Investment News writes "SEC, ICI: Rules on money funds contain flaws", which discusses a panel talk at ICI's Mutual Funds and Investment Management Conference last week in Palm Desert, Calif. It says, "The Securities and Exchange Commission and the Investment Company Institute agree that changes need to be made to the agency's rules governing money market funds, but they don't necessarily agree on what those changes should be." It sites the SEC's Bob Plaze and says, "One way to address the risk that money funds pose to the entire market is to separate investors in retail money funds from those in institutional money funds." It cites Peter Crane and says, "There is no way to separate retail and institutional investors practically." IN adds, "Despite such differences, he [Plaze] said that he could see the SEC adopting many of the working group's recommendations."

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