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Money Market Mutual Funds: What You Need to Know Today ”Breaking the Buck” & Aftermath

Money Market Mutual Funds: What You Need to Know Today ”Breaking the Buck” & Aftermath. October 16, 2008. Peter G. Crane President and CEO Crane Data LLC. Treasury Management Association of New York New York Hilton & Towers, NY. Money Market Mutual Funds: Current State of the Marketplace.

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Money Market Mutual Funds: What You Need to Know Today ”Breaking the Buck” & Aftermath

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  1. Money Market Mutual Funds: What You Need to Know Today”Breaking the Buck” & Aftermath October 16, 2008 Peter G. CranePresident and CEOCrane Data LLC Treasury Management Association of New York New York Hilton & Towers, NY

  2. Money Market Mutual Funds: Current State of the Marketplace • Background • Current State • Hot Topics • “Breaking The Buck” • AFP/Corporate Liquidity Measures • Market Share, Offshore, Enhanced • Questions, Discussion

  3. Money Market Mutual Fund Assets ’78–’08 U.S. Money Market Fund Assets ($ Billions)

  4. Current State of Money Mkt Fund Industry • Assets: Record $3.6, Now $3.4 Trillion • Bank Savings Total $4.0 Trillion • Almost 40 Million Shareholders • Almost $13 Billion Revenue • More than Hollywood @ Box Office • Over 1/3 Share of “Cash” Market • Reserve Primary Fund “Breaks the Buck” • Big Run: A Near-Death Experience • Government Insurance

  5. Money Funds Gain $492B Over 52 Weeks (17%)

  6. Subprime Liquidity Crisis • August ’07: Extensions, Mistaken IDs • Oct. ‘07: Superconduit, 2nd Round of Concerns (SIVs) • Nov. ’07: Bailouts, GE Enhanced, Florida LGIP • Dec. ’07: Columbia StratCash Halts Redemptions • Jan. ’08: Recovery; Fed Cuts Twice (4.25% to 3.0%) • Feb. ’08: Monoline Insurer Concerns, ARS Meltdown • March ’08: Bear, Money Funds Break $3.5 Trillion, • April ‘08: More Disclosures Over Bailouts • August ‘08: Money Funds Celebrate SIV-Free Status • Sept. ’08: Reserve “Breaks the Buck”

  7. Money Fund Bailouts: $5 Billion on $50 Billion Fund Family Advisor/Parent • Barclays Barclays • Columbia (2) Bank of America • Credit Suisse CSAM • Dreyfus BNY Mellon • Evergreen (2) Wachovia • First American USBancorp • HSBC HSBC • Janus Janus • Lehman Lehman • Morgan Stanley Morgan Stanley • Northern Northern • RiverSource Ameriprise • SEI SEI • STI SunTrust (Trusco) • TDAM Toronto Dominion • Victory KeyBank • Wells Fargo Wells Fargo • Western/Citi Legg Mason

  8. Reserve Primary “Breaks the Buck” • 3 Strikes Against • Lots of Lehman Bros • Few funds held • Super Hot Money • No. 1 Rank • Growth from • No Deep Pockets • RMC had little capital, Bents were sole owner.

  9. Money Fund Meltdown

  10. Changes in Money Fund Portfolio Composition

  11. AFP Liquidity Survey • AFP Liquidity Survey • Money funds: 39.​4%, up from 30.​9%. • Bank deposits: 25.​0%, ​down from 27.​1% in '​07. • Enhanced cash, ARS: 2.​2% and 5.​1%, respectively, • T-​bills, agency security and Eurodollar deposit allocations rose, while CP, repo and separately managed accounts all declined over the past year.

  12. Business Short-Term Assets in Money Funds

  13. Money Fund Family Market Share ($bils)

  14. Online Money Fund Trading Portals • $320 Billion in Assets • 15% of Institutional Money Funds • AFP Liquidity Survey • 25% of Corps (Large) Use Portals • 80% of Trades Via Portal • “Hot Money” Stigma • Role in Meltdown? • Content, New Entrants • Online Trading (single fund)

  15. Largest Money Market Funds (9/30/08)

  16. Enhanced Cash and Money Fund Plus • Implosion: Less Than $50 Billion (from $200 Billion) • Axa, BNP, State Street (not enhanced, but …) • Buck-Breakings & Freezes • 3c-7’s Gone: StratCash, BlackRock • Ultra-Short Massacre: Fidelity, Schwab, SSgA • Spreads Sowing Seeds of Resurgence? • Lessons: No Regulation, Differentiation, • No Diversification of Investor Base (Know Your Company)

  17. Offshore & International MMFs • $5 Trillion Worldwide • Rule 2a-7 in Europe? • IMMFA & European Issues • $600 Billion But No Insurance • France • Definition of “Money Fund” • Enhanced Cash Problems • Exits: Standard Chartered • Asia: Japan, Australia, etc.

  18. Outlook & Discussion • Treasury Guaranty Program • Will Money Funds Recover? • Education on CP • Will Anyone Else “Break the Buck”? • Are Cash Levels at a Record High? • Will We See Outflows with Rising Rates? • Growth Estimates? • Thrown Out the Window • Treasury & Govt

  19. Contact Info Peter G. CranePresident and CEO Crane Data LLC 1-508-439-4419 pete@cranedata.comhttp://www.cranedata.com

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