Vol. 19, No.12, December 2007
ISSN: 1043-285X
Money Market Insight ™
Monthly money market industry analysis from the publisher of Money Fund Report™
The total net assets in institutional government money funds
MONTHLY ASSETS OF INSTITUTIONAL grew by a whopping $122.35 billion in August. This 43.8 percent
AND RETAIL GOVERNMENT MMFS inflow nearly doubled the asset total of this group of funds. Net
Govt Retail Govt Instit
assets in retail government funds grew by $19.04 billion; growth of
more than 10 percent. In both categories, this growth was the largest
600,000.0
525,000.0
one-month inflow for government money funds.
450,000.0
The flows returned to a more normal pace in September and
375,000.0 October as news in the financial markets seemed to be a bit more
300,000.0 positive than what we saw in August. The retail government funds
225,000.0 had a small net outflow in September; the institutional category had
150,000.0 increases of $16 billion each month.
75,000.0 The news in November continued to be dominated by the
0.0 effects of the subprime crisis, creating more uneasiness in the
market place. Government money funds were the recipients of $74.2
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billion in the institutional sector and $15.48 billion in the retail
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sector. Prime institutional funds had a net loss of $12.22 billion in
November; prime retail funds gained $20.12 billion.
As 2007 draws to a close, indications are that overall the money
MONTHLY ASSETS OF INSTITUTIONAL fund industry will have record growth in all sectors. Nearly $80 billion
AND RETAIL PRIME MMFS flowed into the funds during the first two weeks of December.
Prime Retail Prime Instit
1,200,000.0 IN SUMMARY: GOOD IDEA
1,000,000.0 The early reviews are positive for the Securities and Exchange
800,000.0 Commission’s plan to permit investors to receive a plain-English
600,000.0
summary instead of a formal “legalese” prospectus before buying
shares of any mutual fund.
400,000.0
The SEC voted unanimously on Nov. 15 to propose rule
200,000.0
changes “that are intended to improve mutual fund disclosure” by
- requiring that all investors receive “a clear, concise summary of key
information needed to make an informed investment decision.” The
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Commission is taking comments through next Feb. 28 on the so-
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called “summary prospectus” and it has posted a three-page mock-
up of one on www.sec.gov. It includes investment objectives,
MONTHLY MMF ASSETS EXCEED strategies, risks and performance; fees and expenses; top 10
$3 TRILLION FOR THE FIRST TIME portfolio holdings; and identities of investment advisers and
Since the subprime “crisis” became the main topic of the day in early portfolio managers, among other items.
August, money funds have been the recipients of record amounts More detailed information would be made available to inter-
of cash. Asset data for the month of August showed a one-month ested investors who request it in either paper form or through a
asset increase for all money funds of $178.32 billion, the highest “user-friendly online format,” the SEC said.
one-month increase ever recorded. During the next three months, The Investment Company Institute almost immediately weighed
asset inflows continued, although not as large as the August flow. in by “applauding” what its president, Paul Schott, termed a
In November, the $3 trillion level was exceeded for the first time on “landmark proposal.” He praised SEC officials for recognizing that
a monthly basis. Nearly a half-billion dollars has flowed into the mutual fund investors “overwhelmingly prefer information that is
coffers of the taxable and tax-free money funds since the end of July. concise, straightforward, and focused on the issues most important
Despite negative press during the past four months, money to them. (The) proposal reflects the power of the Internet to provide
funds continue to grow as investors turn to them for their short- more detailed information to investors in a convenient way.”
term cash investments. One effect of the coverage of SIVs and Representatives from Vanguard, AIM Investments and
other structured money-market securities as instruments that are Oppenheimer Funds were all quoted by MutualFundWire.com on
in danger of failure or have already failed has been the huge Nov. 16 as getting behind the SEC initiative. Among comments posted
inflows into the government money funds. While nearly all money to date on the SEC Web site were these from Jon S. Fossel, who was
funds have raked in record amounts of cash, the growth of assets identified as being a former ICI chairman and an independent fund
in the institutional government money funds has been phenom- director: “This is a long-overdue proposal. The SEC is to be com-
enal since the end of July. mended. Hopefully it will be written in plain English. Lawyers have
a service of iMoneyNet • P.O. Box 5193 • One Research Drive • Westborough, MA 01581-5193 • www.imoneynet.com
MONEY FUND NEWS
caused current mutual fund prospectuses to be nothing but unintel- households and businesses is…posing downside risks to the
ligible, gobbledygook documents that only confuse investors.” outlook for both output and inflation further ahead.”
Shaving Costs The European Central Bank parted company opting to hold its
Forrester Consulting, in a study commissioned by investor key rate steady at 4 percent. By deciding to keep the rate un-
disclosure technology provider NewRiver Inc. of Andover, Mass., changed, ECB President Jean-Claude Trichet commented that while
estimated that “the total cost (to fund companies, brokerages, the fundamentals of the euro zone economy remain sound, the
banks and insurance companies) of printing and postage for turbulence in the financial market translates to continued uncer-
delivering the current prospectus annually and semiannually is tainty about the overall economy. He further stated that the ECB is
approximately $1 billion. Not only does the investment industry prepared to address any inflation risk.
spend exorbitant amounts of money printing and sending these
often unread prospectuses, the environmental impact of producing CLEARWATER ANALYTICS HONES IN
and shipping all that wasted paper is irresponsible in today’s ON MMF TRANSPARENCY
climate of sustainability and energy efficiency,” it stated. “Transparency is the wave of the future; money market funds will
“The Short-Form Prospectus: Industry Poised for Savings, eventually provide daily, lot level reporting ,” that pronouncement
Transparency, and Innovative Ways to Communicate with Inves- from Tyler Haws of Clearwater Analytics underscores the enthu-
tors,” noted that the ICI had found that 59 percent of fund investors siasm of the Web-based investment reporting company that is now
view prospectuses as being very or somewhat difficult to under- turning its attention to money-market fund transparency.
stand while only 34 percent of them even referred to the document MMI asked Haws if this latest in Clearwater’s business devel-
before buying shares. opment model was predicated on the tsunami called the subprime
Responses from 150 companies that sell mutual funds, retire- mortgage crisis. He replied, “A number of factors have increased
ment funds or annuities determined that 95 percent would be the demand from investors for transparency in general. We have
“somewhat or very likely to consider delivering the short-form been providers of portfolio transparency technology for years,
prospectus if the SEC ruling prevails.” The survey also found that and, we are driven by market demand. The opportunity to take
90 percent of respondents would support combining the summary money-market fund reporting to the next level fell into our laps and
prospectus with a trade confirmation in a single delivery, if allowed. we’re ready to go!”
Widespread adoption of the SEC plan would result in annual Clearwater Analytics provides reports on approximately $250
savings of about $300 million, Forrester estimates. billion in assets and says Haws, “We are taking the Clearwater
About 86 percent of the companies surveyed indicated that solutions and applying it to the holdings of money-market funds.”
they would also explore electronic delivery if the SEC proposal Haws says all of Clearwater’s corporate clients are “clamoring”
becomes reality. The complete 20-page white paper is available at for heightened reporting and “ecstatic” about the prospect of
www.newriver.com. viewing money-market fund holdings on a daily basis. And while
that is something Clearwater is capable of providing, Haws is quick
THE FED & BOE CUT RATES, ECB HOLDS FIRM
to point out that his firm can only provide reports if holdings data
The Federal Reserve’s Dec. 11 session resulted in another rate cut. is supplied by the funds. So initially the holdings may be accessible
The Federal Open Market Committee decided to lower its target for on a quarterly, monthly or even weekly basis. However, Clearwater’s
the federal funds 25 basis points to 4.25 percent. goal is to provide the transparency that comes with a daily snapshot
In making the announcement the Fed said, “Incoming informa- of what the funds are holding.
tion suggests that economic growth is slowing, reflecting the Clearwater clients have communicated three areas where they
intensification of the housing correction and some softening in think money-market reporting may be improved, Haws tells MMI.
business and consumer spending. Moreover, strains in the finan- They are “timeliness, value-added and efficiency.” Timeliness
cial markets have increased in recent weeks. Today’s action, translates to daily updates on the holdings. Value-added pertains
combined with the policy actions taken earlier, should help promote to the ability to drill down and see not only the amortized cost of
moderate growth over time” a position but also its market price as well as duration, sector, credit
The Fed further stated that it will continue “to monitor inflation rating, asset type, and more. Efficiency allows investors to analyze
developments carefully.” the holdings of various funds within a single platform, providing
Meanwhile the previous week saw the Bank of England cut its the investor with apples to apples reporting.
key interest rate by 25 basis points to 5.5 percent. The Dec. 6 decision There is one fund family which has expressed strong interest
marked the first reduction of the rate in more than two years. in the program. When asked how Clearwater plans to get the word
According to the its Web site, “Although output in the United out, Haws says there will be meetings with fund families and a
Kingdom has expended at a brisk pace for the past two years, there Webinar where the product will be unveiled to the public during the
are now signs that growth has begun to slow. Forward-looking first quarter of 2008.
surveys of households and businesses suggest spending is mod- He says transparency provides positive incentives for the
erating, broadly in line with the projections contained in the investor and the funds.
November Inflation Report. But conditions in financial markets For the investor, it provides a “clear understanding of the
have deteriorated and a tightening in the supply of credit to structure, risk components and ongoing confidence in investment
2 Money Market Insight December 2007
MONEY FUND NEWS
choices.” For the funds, he sees “enhanced distribution channels ASSETS AND PORTFOLIO HOLDINGS OF OFFSHORE MMFs
and increased customer satisfaction.” He says the “early adopters Euro-Denominated MMFs
will have a persuasive differentiator from the other funds.” Assets
Date (•bils) Repos TDs CDs FRNs CP
PRIME FUNDS HOLDING LESS CP 08/03/07 • 78.6 1 18 5 20 52
As cash continues to flow into the non-government money funds 08/10/07 78.5 1 15 6 21 52
08/17/07 76.5 1 19 6 20 49
both in the U.S. and abroad, the percentage of prime commercial 08/24/07 77.0 2 21 7 20 45
paper holdings has lessened since the beginning of August. As the 08/31/07 74.6 1 21 7 21 44
09/07/07 76.3 1 22 8 20 44
tables show, there has been less shrinkage of CP holdings in the
09/14/07 75.4 2 25 8 21 40
U.S. money funds than in the “Offshore” money funds that report 09/21/07 76.5 2 26 9 20 37
to iMoneyNet. The percentage of floating- and variable-rate notes 09/28/07 72.5 1 25 10 21 38
10/05/07 77.4 3 24 11 19 38
has also diminished in the U.S. and the Offshore funds. 10/12/07 79.7 2 23 12 19 40
The five tables provide a look at what types of money-market 10/19/07 81.1 2 23 13 19 40
investments are gaining share. Repos and domestic and foreign 10/26/07 80.6 2 22 14 20 39
11/02/07 81.2 3 20 15 19 41
bank obligations have increased in the U.S. money-market funds 11/09/07 81.4 2 21 15 19 43
while CP and FRN holdings have lessened. 11/16/07 84.4 2 24 15 18 41
11/23/07 84.1 2 24 16 18 40
11/30/07 82.3 2 24 16 18 40
ASSETS AND PORTFOLIO HOLDINGS OF PRIME MMFs 12/07/07 87.0 2 24 15 17 41
Prime Institutional Sterling-Denominated MMFs
Assets Assets
Date ($bils) Repos TDs DBOs FBOs FRNs CP Date (£bils) Repos TDs CDs FRNs CP
08/07/07 $1,030.1 12 4 7 6 23 46 08/03/07 £70.9 0 11 16 16 54
08/14/07 1,036.4 13 3 7 6 23 45 08/10/07 70.0 0 10 18 16 51
08/21/07 1,021.1 13 4 7 6 23 45 08/17/07 68.6 0 10 21 17 45
08/28/07 1,002.1 13 4 7 6 23 45 08/24/07 68.4 1 11 23 17 43
09/04/07 1,012.2 14 4 7 6 23 44 08/31/07 69.1 1 12 24 17 38
09/11/07 1,031.0 15 3 7 6 22 44 09/07/07 70.4 0 12 26 16 37
09/18/07 1,021.7 14 3 7 6 22 45 09/14/07 71.9 1 14 28 16 34
09/25/07 1,056.3 14 3 7 7 22 44 09/21/07 72.7 1 16 28 16 31
10/02/07 1,085.5 14 3 7 7 21 45 09/28/07 71.0 0 16 28 16 32
10/09/07 1,100.2 14 3 8 7 21 45 10/05/07 73.6 4 20 22 15 31
10/16/07 1,117.8 15 3 7 7 21 44 10/12/07 75.4 2 21 23 15 32
10/23/07 1,146.2 15 3 8 7 20 44 10/19/07 74.6 2 22 21 15 32
10/30/07 1,145.6 16 2 8 8 21 44 10/26/07 76.3 2 22 22 15 31
11/06/07 1,152.8 15 3 8 8 20 44 11/02/07 76.5 2 24 20 15 38
11/13/07 1,154.8 16 3 8 7 20 44 11/09/07 78.7 2 25 20 15 37
11/20/07 1,144.5 16 3 8 7 20 44 11/16/07 79.1 2 26 20 14 38
11/27/07 1,142.8 16 3 8 7 20 43 11/23/07 78.8 2 26 20 15 36
12/04/07 1,156.1 17 3 8 7 20 43 11/30/07 78.1 1 27 20 15 36
12/11/07 1,167.4 16 3 8 7 20 43 12/07/07 78.8 2 27 20 15 36
Prime Retail U.S. Dollar-Denominated Offshore MMFs
Assets Assets
Date ($bils) Repos TDs DBOs FBOs FRNs CP Date ($bils) Repos TDs CDs FRNs CP
08/07/07 $694.7 7 2 6 5 21 54 08/03/07 $299.8 13 8 15 21 43
08/14/07 699.4 7 2 6 5 22 54 08/10/07 297.4 13 9 14 22 41
08/21/07 706.2 7 2 6 5 21 53 08/17/07 299.5 13 11 14 22 40
08/28/07 702.1 8 2 6 5 21 52 08/24/07 290.9 12 11 15 22 40
09/04/07 699.8 9 2 6 5 21 51 08/31/07 287.6 12 11 15 22 37
09/11/07 702.0 9 2 6 5 21 52 09/07/07 288.7 14 11 15 22 36
09/18/07 703.9 9 1 6 6 20 51 09/14/07 291.4 14 12 15 22 36
09/25/07 701.4 9 2 6 6 20 52 09/21/07 292.9 14 13 15 21 37
10/02/07 704.3 9 2 6 6 20 52 09/28/07 298.7 13 14 16 20 36
10/09/07 707.3 9 1 7 6 19 51 10/05/07 308.4 14 13 16 20 37
10/16/07 707.8 10 1 7 6 20 51 10/12/07 314.9 14 14 16 20 36
10/23/07 709.9 10 1 7 6 19 51 10/19/07 323.2 14 12 17 19 36
10/30/07 711.0 10 1 8 6 19 51 10/26/07 329.5 15 12 18 19 36
11/06/07 716.2 9 1 8 7 19 50 11/02/07 335.9 15 11 18 16 37
11/13/07 718.4 9 2 7 6 19 50 11/09/07 332.8 13 11 19 17 38
11/20/07 728.7 9 1 8 6 18 51 11/16/07 336.7 14 10 19 17 37
11/27/07 729.1 9 2 8 6 19 51 11/23/07 338.0 14 11 19 16 36
12/04/07 734.8 10 1 8 6 18 50 11/30/07 338.5 13 12 19 16 36
12/11/07 732.8 9 2 8 7 20 51 12/07/07 335.0 14 12 19 17 36
December 2007 Money Market Insight 3