Recently, Crane Data LLC Founder and President Peter Crane has given several talks on the state of money funds. Most recently, Crane presented an AFP Webinar entitled, "Money Market Mutual Funds: Reviewing the New Regulations & Discussing the Outlook for Future Changes." We quote some of Crane's recent comments below. (Let us know if you'd like to see Crane's most recent Powerpoint slides, a presentation to the Commercial Paper Issuer's Working Group entitled, "The Money Market Mutual Fund Industry: Reviewing Regulations, Rates & Asset Flows.")
Last week, Crane said, "Paraphrasing Will Rogers, 'Money funds are for investors that want return of capital instead of return on capital.' Of course, in the zero rate environment today, that's never been more true. I also like to call money market mutual funds the FedEx of asset classes, when it absolutely positively has to be there overnight."
On their history, Crane explained, "Throughout the 70's they were really still being born. You had oil price shocks, and rates towards 20% in 1981-82, that really kicked things off. You see spectacular growth in the 80's and in the 90's, then the magnificent spike-up and decline in the '00's. `In the '80's it was the growth of mutual funds over all, the 90's was the dawn of the institutional money fund.... About 15 years ago retail money funds made up 2/3 of assets; today it's the opposite.... You had corporate outsourcing and falling rates driving a lot of the cash into money market mutual funds. The two dominant themes throughout the history of money funds have really been their synergy with mutual funds overall, and the growth of mutual funds and pooled investments, and then also their rivalry with bank deposits."
On asset flows, Crane said, "I often get asked, 'Where is the money going?' When you look at the $1 trillion hole in money funds assets we've seen over the past 14, 15 months, you'll see that bank MMDAs are up over $600 billion. So it almost mirrors the move. Although it's tough tracking dollars, that big bank build up is `partially, or primarily the result of the TAG program, the unlimited non-interest bearing FDIC insurance. We've also seen a lot of brokerage sweep and FDIC insurance amalgamators.... [T]hat explains a lot of that big build up, and of course the FDIC insurance has been a major selling point."
Regarding the Current State of Money Market Funds, Crane commented, "Money funds currently total $2.85 trillion, pushing towards $2.8T.... [J]ust to put money fund asset totals in perspective, $2.85 trillion is the level we were at in September 2007, which is when I, and some others, will date the start of the 'Subprime Liquidity Crisis'.... It's amazing that money funds, throughout 2/3 of the crisis really were gaining assets. Of course, the Fed was cutting rates."
Finally, Crane said funds also have, "Over 30 million share holders, or about 31, 32 million. But those numbers keep ticking down.... It represents a very broad swath of America. There are several million institutional accounts. I like to say, as a well-known proponent of the money fund business, it's a very powerful lobbying group, perhaps the powerful out there -- people with money."
