Daily Links Archives: May, 2009

Saturday's Wall Street Journal writes, "Money Funds: Fee-Free, Ho-Hum," which says, "Investors spooked by stocks and most bonds have found relief in money-market mutual funds -- but that comfort may be deceiving. Despite recent improvements in the credit markets, many money-market funds are providing positive yields only because of waivers on management fees. In other words, fund firms are taking a hit so their shareholders don't. Starting late last year, many firms waived some fees, and even closed certain funds to new investors, as interest rates fell in response to the freeze in the credit markets. Six months later, money-fund investors are seeing negligible returns while firms are forgoing revenue in difficult times." Also in the Weekend Journal is "Is Your Fund Pawning Shares at Your Expense?", which criticizes securities lending in stock and bond funds. It says, "At OppenheimerFunds, cash collateral generated by securities lending may be invested in a fund run by the parent company but not registered with the Securities and Exchange Commission.... Oppenheimer does disclose that it charges its funds 0.08% annually to reinvest their collateral in its OFI Liquid Assets Fund.... Since September 2007, I estimate, Oppenheimer has collected at least $2 million in these fees-piled-on-fees." See too WSJ's "Your Cash: How Safe Is Safe?", which discusses ways around the limits on deposit insurance. Finally, WSJ also carried "Reserve Management Clears Treasury Fund". (See Reserve's release here.)

ICI's latest weekly "Money Market Mutual Fund Assets" report shows assets rising by $15.5 billion to $3.789 trillion in the latest week ended Wednesday, May 27. Institutional funds accounted for the move, rising $22.74 billion to $2.521 trillion, while retail funds declined by $7.29 billion to $1.268 trillion. ICI says, "Taxable government money market fund assets in the retail category decreased by $1.39 billion to $219.25 billion, taxable non-government money market fund assets decreased by $4.53 billion to $775.49 billion, and tax-exempt fund assets decreased by $1.37 billion to $273.49 billion.... Among institutional funds, taxable government money market fund assets increased by $18.09 billion to $1.111 trillion, taxable non-government money market fund assets increased by $4.87 billion to $1.220 trillion, and tax-exempt fund assets decreased by $217 million to $190.04 billion." Year-to-date, money fund assets have declined by $41.1 billion, or 1.1%. Over the past 52 weeks, money fund assets have increased by $262 billion, or 7.4%, and since the end of August 2007 money fund assets have increased by over $1.0 trillion. ICI also released its monthly mutual fund asset series for April 2009, which showed money fund assets declining by $21.9 billion, or 0.57%, to $3.792 trillion last month. Liquid assets of stock mutual funds as a percent of total assets fell from 5.5% to 5.2%, though they remain up from 4.3% a year ago.

Dow Jones writes "CFTC Considers Restrictions On Investment Of Customer Funds", saying, "The U.S. Commodity Futures Trading Commission said Friday it may consider scaling back the kinds of investments that clearinghouses and futures commission merchants are permitted to make with customers' money to less-risky instruments. Among the possible investment instruments the CFTC may consider prohibiting include money market mutual funds and government-sponsored enterprise securities, although the agency said it is re-evaluating all of the investments that firms are currently permitted to make with the money that customers deposit to meet their margin calls." The piece adds, "The CFTC's questions surrounding the safety of money market funds come just as the SEC is gearing up to propose new rules next month that aim to restore investors' confidence in them. Those rules will seek to improve the liquidity and credit quality of money market funds."

"Industry, SEC Spar Over Money Funds" writes Money Management Executive. The article, printed in Financial Planning, says, "The Securities and Exchange Commission is considering making significant changes to money market mutual funds because there is still a danger that these funds could be unable to meet redemptions when investors begin to step off the sidelines en masse and move back into equity markets. At a seminar on money market funds held last week at the U.S. Chamber of Commerce and hosted by the Center for Capital Markets Competitiveness, Vanguard Chairman John Brennan admitted that money funds had a near-death experience late last year." He said, "What happened last September was terrible -- and it should not have happened -- but it triggered intense reflection and examination in our industry." MME says, "In order to get a better sense of how to improve the system and prevent similar problems, regulators and industry leaders have been looking at what went wrong last year." The article also says, "In June, the SEC will consider radical changes to Rule 2a-7, including the elimination of the stable $1 NAV, limiting a fund's size relative to its respective market, requiring minimum cash reserves such as 10% of the fund's total assets, and requiring money funds to have insurance guarantees similar to the Federal Deposit Insurance Corporation's bank guarantee. But without a $1 NAV, industry leaders fear that trillions of dollars of assets could leave the mutual fund industry for other sectors that are perhaps less suited to handle such traffic." Also, for those attending the New York Cash Exchange this week at the New York Hilton, check out Peter Crane's panel, "Near-Death Experience: Learning from the Turmoil in Money Market Mutual Funds" Wednesday at 2pm.

"Money fund firms withdrawing from Treasury program" writes Investment News. The article says, "Signaling greater stability in the credit markets, most of the major fund complexes offering Treasury money market funds have discontinued their participation in the federal guarantee program on those funds. According to Peter Crane, president of Crane Data LLC, a Westborough, Mass., research firm that focuses on the money market industry, the large fund firms dropping guarantees on Treasury money market funds are keeping the insurance on prime money market funds and money market funds that invest in non-government debt." IN continues, "Some observers expect the Treasury Department's guarantee program to end in September. The program was launched last September after a fund managed by The Reserve Management Co. Inc. of New York lost value and 'broke the buck,' causing panic in the money markets. Other observers, however, say it's too early to predict whether the program will be discontinued." It quotes Cary Carbonaro, president of Family Financial Research, "My clients are out of panic mode. It feels like some of the fear is gone. I don't see the insurance as having a huge value. In addition, the clients will be paying for it with a lower yield."

ICI's Latest "Money Market Mutual Fund Assets report says, "Total money market mutual fund assets decreased by $16.66 billion to $3.774 trillion for the week ended Wednesday, May 20.... Taxable government funds decreased by $18.45 billion, taxable non-government funds increased by $1.53 billion, and tax-exempt funds increased by $260 million." This represents the eighth week out of 10 that money fund assets have fallen, declining $132.9 billion, or 3.4%, since March 11, 2009. Year-to-date, money fund assets have declined by $56.5 billion, or 1.5%. Over 52 weeks, money fund assets have increased by $240 billion, or 6.8%. The ICI report adds, "Assets of retail money market funds decreased by $2.03 billion to $1.276 trillion. Taxable government money market fund assets in the retail category decreased by $1.42 billion to $220.64 billion, taxable non-government money market fund assets decreased by $1.02 billion to $780.02 billion, and tax-exempt fund assets increased by $400 million to $274.86 billion. Assets of institutional money market funds decreased by $14.62 billion to $2.498 trillion. Among institutional funds, taxable government money market fund assets decreased by $17.03 billion to $1.093 trillion, taxable non-government money market fund assets increased by $2.54 billion to $1.215 trillion, and tax-exempt fund assets decreased by $140 million to $190.26 billion." On another subject, join us in Providence for a free demo sessions of online money market trading portals and a free training workshop on Crane Data's new Money Fund Wisdom database software following Crane's Money Fund Symposium on August 25, 2009. Visit https://www.kinsleymeetings.com/Crane/agenda.htm or contact us for the more details.

S&P put out two press releases on local government investment pools yesterday -- "S&P: Florida Surplus Asset Fund Trust 'AAAm' Rating Remains On CreditWatch Negative and "S&P: Colorado Surplus Asset Fund Trust (CSAFE) 'AAAm' Rating Remains On CreditWatch Negative" which deal with pools holding impaired investments in Reserve Primary Fund. The first release says, "Standard & Poor's Ratings Services said today that its 'AAAm' principal stability fund rating on the Florida Surplus Asset Fund Trust (FLSAFE) remains on CreditWatch with negative implications, where it was placed Feb. 27, 2009. The initial CreditWatch action was based on uncertainty surrounding the redemption share price or net asset value (NAV) the pool expects to receive from its investments in the Reserve Primary Fund. On Feb. 26, the Reserve stated that it would set aside $3.5 billion in a special reserve to cover potential damages and legal fees. On May 5, 2009, the SEC 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. We believe that in bringing the enforcement action, the SEC also seeks to expedite the distribution of the fund's remaining assets to investors. Although this SEC action is an important development in resolving the distribution of fund shares, it does not, in our view, eliminate the uncertainty that prompted the CreditWatch actions on FLSAFE. We will continue to monitor the situation and revise our opinion if necessary. The placement on CreditWatch negative signifies that we could affirm or lower the rating pending the final NAV payout to Reserve Primary Fund holders and the pools' ability to maintain a stable NAV."

Williams Capital To Manage $1 Billion For Goldman Sachs says a press release issued yesterday. The piece says, "Williams Capital Management, LLC, a wholly-owned subsidiary of The Williams Capital Group, L.P., announced today that The Goldman Sachs Group, Inc. selected Williams Capital to manage $1 billion of U.S treasury and government agency securities. The investment will provide Williams Capital with a significant increase in its assets under management. Because many prospective investors require that managers have a minimum amount of assets under management before they invest, this investment is expected to be very significant in helping Williams Capital grow its business." Chris Williams, CEO of The Williams Capital Group, says, "Goldman Sachs' investment will enable us to bring our conservative investment strategies to a wider group of prospective clients who had previously been unable to consider investing with us." `Goldman Sachs Treasurer Liz Beshel commented, "Our balance sheet is very liquid. Chris brought us a timely proposal that helps us manage our liquidity position while also providing the added benefit of helping Williams Capital grow its asset management business. We look forward to continuing our long-standing relationship with Chris and his team." Finally, the release says, "Williams Capital Management, LLC manages a range of fixed income investment products including high yield bonds, short and limited duration investment grade securities, and money market investments. `As the adviser to the 2a-7 Aaa/AAAm-rated U.S. Government Money Market Fund (the Fund), and its predecessor Liquid Assets Fund, Williams Capital Management has served institutional investors since 2003." In other news, see Investment News' "New regs for money funds may hamper yields, report says", which discusses a paper by Capital Advisors.

In a possible sign of tough times in the conference marketplace, the Treasury Management Association of New York is offering a "Stimulus Special" discount pricing package to its upcoming New York Cash Exchange confernce. A recent e-mail solicitation says, "TMANY recognizes everyone's budget difficulties in these times. In an effort to make Treasury information/education available to as many corporate practitioners as possible, TMANY will offer a 'Stimulus Special'. This is available for Corporate Treasury Practitioners who have not yet registered, at a registration fee of $225. The Stimulus Special includes: Full conference registration privileges for the full day Thursday (May 28th).... [and] Friday morning (May 29th).... To take advantage of this opportunity, go to the Web Site `http://www.tmany.org/ conference.htm. Page down to 'Online Registration.' At the end of the registration process, enter Code 'NSS9.' The rate will change to $225. Pick up your badge and conference materials Thursday morning."

The June issue of SmartMoney writes "How to Pick the Right Fund Firm". The article, which isn't yet available online, discusses the sharp rebound in the stocks of asset managers and contains a few comments on money funds. It says, "Another big trend: cash. Money-market assets are up $318 billion, or 9 percent, in the past year. These funds tend to have very low fees, but Federated Investors, which has $407 billion in assets, offers a wide array of money-market funds and has the scale to make the business profitable. What's more, when investors move their cash into the market, they tend to keep their money within the same fund family, says Peter Crane, president of money-market research firm Crane Data." The piece also mentions BlackRock and Charles Schwab.

The U.S. Chamber of Commerce's Center for Capital Markets Competitiveness will host a seminar entitled, "`Money Market Funds: Weathering the Financial Crisis" on Tuesday, May 19. The description says, "This half-day conference will discuss current and future role of money market mutual funds including lessons from the current financial crisis. Experts will describe industry led reforms as well as proposed SEC regulatory steps that will both facilitate a timely transition out of Treasury's Temporary Guarantee Program and ensure a permanent, orderly, and effective regulatory framework for these important investment vehicles. Registration and breakfast will begin at 9:00 a.m., followed by the program and lunch from 9:30 a.m. to 1:00 p.m." Speakers include: Vanguard's John Brennan, Fidelity's Charlie Morrison, Federal Reserve Bank of Atlanta's Paula Tkac, and ICI's Brian Reid.

Today's Wall Street Jounal writes "Money Funds Begin to Cut U.S. Backing", saying, "The Treasury Department's guarantee program for money-market funds was welcomed as panic gripped the industry, but some fund firms now appear to be preparing to wean investors from the program. The guarantee program was instituted in September after Reserve Primary Fund's net asset value dropped to 97 cents a share, and investors began pulling money from prime money-market funds.... Since then, the program, which essentially ensures funds against 'breaking the buck' as the Primary Fund did, has been extended twice. It is set to run through Sept. 18. But fund companies aren't embracing it as they once did." It says, "Peter Crane, president and chief executive of Crane Data, says coverage from the program has, in effect, gone to about 75% from about 95% as funds don't renew for Treasury and some of their government money-market funds." Crane says, "But with prime money-market funds, that still make up the largest segment, participation remains virtually unanimous." In other news, see Standard & Poor's Peter Rizzo on Fox Business News. (Look for "Trends in Money Market Funds".)

Kiplinger's asks "Are Money Funds Safe Now?" The piece says, "[M]oney funds are headed for a more comprehensive makeover. You can expect heightened regulation that would, among other things, limit portfolio risk, ensure minimum levels of cash to meet withdrawals, disclose more details about investments, and ensure that, in the event of a run, the first shareholders out the door won't be cutting their losses at the expense of those who remain. Most funds already comply with most of the suggestions on the table." The magazine quotes Peter Crane, "The market has ruthlessly addressed the risk in money funds -- they've gone conservative." "New regulations won't reduce yields any more than they've already been clipped by investing more conservatively, says Crane. What you're less likely to see: funds with floating net asset values, or $10-a-share NAVs." In other news, The Boston Globe writes "Columbia's tangled web", which says, "It comes as no shock that struggling Bank of America Corp. would be interested in unloading its money management arm headquartered in Boston. Here's the puzzler: Why would someone want to buy Columbia Management Group, or at least purchase it at a price that would be considered attractive to the capital-challenged Bank of America?" The Globe continues, "Columbia's $340 billion of assets includes about $142 billion of money market funds, according to Peter Crane of Crane Data LLC, a money fund research firm in Westborough. It quotes Crane, "Both Columbia and Legg Mason are seen as being the hardest hit with the SIV issue. They weren't nearly the worst cases, but they were the biggest, so the numbers are just gigantic."

Pensions & Investments features "Inside the panic at Reserve Fund", which describes the hours before The Reserve Primary Fund "broke the buck" and the recent SEC charges filed against the company. P&I says, "The Securities and Exchange Commission last week charged the Bents and Reserve with fraud, alleging that they failed to provide key information to customers, board members and credit-rating agencies after Lehman collapsed. Reserve and the Bents said they would support the $1-per-share asset value of their fund when in fact there was no such intention, the SEC contends. The agency also charges that Reserve misled directors and credit raters by significantly understating how many investors were yanking money after the Lehman bankruptcy hit." In other news, see Investment News' "Money market mutual funds hit record low in April", which says, "The average yield for money market mutual funds hit a record low in April, according to Crane Data LLC. The Crane 100 Money Fund Index, which is an average of the 100 largest taxable money funds' latest seven-day yields, found that the average yield fell to 0.38% in April, net of fees, from 0.43% the previous month." It quotes Pete Crane, "Yields cannot get much lower."

American Banker writes "Broken? For Money Market Funds, It's a Time to Grow". Last week's article takes a contrarian view and says, "Observers expect still more growth, especially at the industry's biggest firms." It quotes Lloyd Wennlund, an executive V.P. at Northern Trust Global Investments, "A lot of people thought money funds as we knew them were in trouble -- maybe not dead, but definitely troubled. But ultimately, I think it allowed the substantial players in the money market fund space to rise to the top of a crowded field." The piece also quotes Goldman Sachs Asset Management's David Fishman, State Street Global Advisors' Steven Meier, and Fidelity Investments Charlie Morrison. American Banker says, "Observers expect the large industry players to emerge from the crisis in better shape than before, though the same will not be true for the Reserve Fund." Also, see "Money-market funds are suddenly exciting" and WSJ's "Government Holds Strings to Markets".

"Investors Sell Short-Term Bank Debt" writes The Wall Street Journal, saying, "A recent ratings warning on 23 financial institutions and a tweak in one of the Federal Reserve's programs to shore up money-market funds is pushing investors to unload billions of dollars of short-term bank debt.... The Fed reported that it extended $29 billion of financing through its Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, or AMLF, up sharply from $3.7 billion in the prior week." In other news, see ICI's weekly "Money Market Mutual Fund Assets", which show money market fund assets declining by $11.0 billion to $3.787 trillion for the week ended May 6. Money funds assets have declined for 4 weeks in a row and for 7 out of the last 8 weeks. They've fallen by $119.4 billion, or 3.1%, since March 11, and they are $135 billion below their record high of $3.922 trillion set on Jan. 14, 2009. Finally, Peter Crane will be speaking Friday a.m. at the Treasury Management Association of New England's annual conference at the Boston Marriott Copley Place. The topic is "The Shifting Landscape of Money Market Funds: Doing Your Diligence & Avoiding Landmines." (Contact us if you'd like a copy of our slides.)

Moody's Investors Service announced several new "offshore" triple-A money fund ratings last week. The releases include: "Moody's assigns Aaa/MR1+ to Western Asset Government Money Market Fund," and "Moody's assigns Aaa/MR1+ ratings to four UBS funds." The first press release says, "Moody's Investors Service has assigned a Aaa/MR1+ money market fund rating to the Western Asset Government Money Market Fund, Ltd., which was launched in March. The fund, which has three share classes, is a Cayman Island company investing exclusively in the Government Portfolio, which is a separate series of Master Portfolio Trust, a Maryland business trust. The fund will not be registered under the 1940 Act and is not registered under the 1933 Act." VP and Senior Credit Officer Martin Duffy says, "The Aaa/MR1+ fund rating assigned to the fund reflects our view that the investment strategy for this fund will be conservative." The release adds, "The fund is part of a master feeder structure with two feeder funds that invest all their investable assets exclusively in the master US registered Government Portfolio." Moody's says of UBS, "Moody's Investors Service today assigned money market fund ratings of Aaa/MR1+ to each of the newly established UBS (Cay) Select Treasury Preferred Fund Ltd., UBS (Cay) Select Treasury Institutional Fund Ltd., UBS (Cay) Select Prime Preferred Fund Ltd., and UBS (Cay) Select Prime Institutional Fund Ltd.... The funds are expected to launch in May 2009."

Hear Pete Crane on The Wall Street Journal's Podcast which accompanied yesterday's article, "When Safe Places No Longer Feel So Safe". Crane tells the WSJ, "There are really a few things you can do [to make sure your money fund is safe]. The most important thing is to know where the Fed is, to know where the Federal funds target rate is. It's currently zero to 0.25%. Make sure that your yield that you're getting on the money fund is not too far removed. In normal conditions, a one percent range around the Federal funds target ... would be appropriate. Currently, you go up to perhaps as much as 2%, but anything over 2% in the current environment is too good to be true. The other thing you can do is go with the name and the brand.... Even though money market funds can 'break the buck' as we learned so painfully, it's more likely that you'll get reparations or be made whole if you go with a large, reputable firm.... It's not always the case, but investors should assume that return equals risk, that there's no free lunches."

Today's Wall Steet Journal writes "When Safe Places No Longer Feel So Safe", which asks, "Is anything safe??" The article says, "Just a year or so ago, it wasn't hard to spot the safest options on a typical retirement-plan investment menu. There were money-market funds, which typically aim to maintain a steady $1-a-share net asset value. There were stable-value funds, which also are designed to preserve capital and deliver smooth, steady returns. And there were short-term bond funds, which many investors saw as only slightly riskier than cash. But all of these supposedly stodgy investments have come under serious strain in the financial crisis. In September, a money-market fund that held Lehman Brothers debt fell below the sacrosanct $1 level, sparking massive withdrawals from certain money funds. In recent months, at least two stable-value funds have dished up losses to retirement-plan investors. And a number of short-term bond funds posted large declines last year as mortgage-related holdings hit the skids." On money funds, it adds, "Investors should pay attention to a money-market fund's yield. A higher yield often means higher risk. In this low-rate environment, a yield much above 1% could be a red flag, says Peter Crane, president of Crane Data LLC of Westboro, Mass., which tracks the money markets." "If you've made the decision to be in safe investments in the first place, you don't want to blow it by reaching for a little extra yield," WSJ quotes Crane.

We recently stumbled across two press releases from new entities -- Double Rock and Intrasweep -- that appear to be affiliates or reincarnations of The Reserve (Funds). The first release, "Double Rock Corporation Issued Patent on Innovative FDIC-Insured Sweep Technology," quotes Reserve's John Drahzal, identified as MD of LIDs Capital LLC, a "wholly owned subsidiary of Double Rock that will utilize the newly issued patent and offer its Liquid Insured Deposits program to brokerage clients." Drahzal says, "We have been creating value for our brokerage clients since we invented the first FDIC-insured sweep program over a decade ago. Receiving this patent for our unique multi-bank tiering functionality is a fitting reward for innovation for which we are extremely proud." The second press release, "Intrasweep Announces "Summer of Strength" Campaign, Supports Bank Clients, says, "The campaign provides an opportunity for its client banks to increase deposits and profitability through the unique Intrasweep On-Balance-Sheet Sweep program." The release adds, "The Intrasweep On-Balance-Sheet Sweep is a complete cash management solution for banks to grow deposits and improve their balance sheet liquidity while enabling their commercial depositors to earn interest on idle account balances. Because the interest on these commercial sweep balances are held at an account at the bank instead of at an outside money fund or repo sweep program, valuable deposits are retained by the bank as core deposits, which can be used to fund local loan demand." In other news, note that Crane Data's Peter Crane will be speaking tomorrow at a SIFMA Asset Management Account Roundtable meeting in Palm Beach, Fla., on the "State of the Money Market Fund & Cash Investment Marketplace."

Morningstar Fund Spy writes "The Broken Money Market Model", saying, "There's a debate going on today about the future of money market funds. It's one that's been brewing for years, but only began boiling in the fall of 2008 when a portfolio under the Reserve Fund banner proved a lot riskier than its nurtured reputation and 'broke the buck' -- its net asset value fell below the requisite $1 per share. The question now at hand is how to prevent the kind of catastrophic money market disasters that we nearly saw in 2008 <b:>_." Also, see the `(Canadian) Globe and Mail's, "Say adios to money market funds". Finally, see ICI's weekly "Money Market Mutual Fund Assets", which says, "Total money market mutual fund assets decreased by $8.00 billion to $3.798 trillion for the week ended Wednesday, April 29, the Investment Company Institute reported today. Taxable government funds decreased by $4.95 billion, taxable non-government funds increased by $2.14 billion, and tax-exempt funds decreased by $5.19 billion."

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