We excerpted the first part of our latest Money Fund Intelligence "profile" in last week's Crane Data News story, "March MFI Profiles The New Western Asset: Looking for a Legg Up." Today, we recycle some more highlights from our interview with Western Asset Management's Kevin Kennedy and Michael Van Raaphorst for the benefit of non-subscribers.
We ask, "Will you have to be a giant in the future to manage money funds? Van Raaphorst tells us, "I definitely think that consolidation is something that's ongoing within the industry. But you're really looking at consolidation outside the top 20. According to the numbers that we see, over 90% percent of assets are with the top 20 providers." (Crane Data's latest Money Fund Intelligence XLS shows the largest 20 providers manage $2.76 trillion, or 93% of all money fund assets.)
He adds, "Folks that are outside of that range may be looking at this business with the amended regulations and questions around how long rates are going to be at this level. They may be thinking about exiting the business. Fortunately, we sit well within that [top 20] range and we think that there is a lot of room for those larger players to continue to gain overall market share. We also feel like we are in a good spot right now to continue to grow our business."
MFI also asks, "Does it also help that Western Asset is big in bonds?" Van Raaphorst says, "We look at the money market portion of our business as a unique franchise within our overall corporate structure. But to the extent that money moves out the curve and into our other fixed income products, that's really how we envisioned the long-term design between the money market funds and our other fixed income products at Western Asset, as a diversifier. That ability to cross-sell is very important in both directions."
He continues, "The money fund business served us very well from an overall firm AUM standpoint in 2007 and 2008. Another unique feature in terms of specializing in both money funds and fixed income is that on the investment side of things, our money market investment teams have access to the depth and breadth of our fixed income research efforts across the globe, outside of the money fund arena."
Finally, we ask, "How have assets been doing beyond 2a-7 funds?" Van Raaphorst answers, "Clients obviously in this type of environment are looking for alternatives when it comes to yield. We've had a lot more interest in our enhanced liquidity separate account business. We haven't seen a substantial flood of new dollars, but it has been fairly steady. We expect that specific product area to continue to increase. I think anybody that is in this business is trying to make sure that they have their bases covered (including commingled vehicles), and we definitely fall within that category."
