This month Money Fund Intelligence profiled the Dreyfus money funds and interviewed several veteran members of BNY Mellon's new Cash Investment Strategies unit, one of the world's largest. We spoke with Charles Cardona, President of The Dreyfus Corporation and BNY Mellon Cash Investment Strategies, Patricia Larkin, Chief Investment Officer of CIS for the Taxable 2a-7 and Tax-Exempt Money Funds, and Louis Geser, Director of Short Duration Credit Research. Excerpts from our Q&A follow.
First we asked, "What's new with Dreyfus, BNY Mellon and CIS? Cardona told MFI, "We've been working to integrate all of the BNY Mellon short duration, fixed income activities under a division of The Dreyfus Corporation called BNY Mellon Cash Investment Strategies.... [W]e are managing over $550 billion dollars in terms of assets within short duration fixed income. Our goals were three-fold. First, we wanted a unified credit and risk analysis approach supporting all of our separate products under the short duration fixed income space. Second, this has enabled us to consolidate a large portion of our distribution and client coverage efforts across different products. Third, [it's allowed us to] provide all CIS constituents with a consistent process across all of our portfolio activities whether it is money market funds, bank commingled funds, separate accounts, stable value, or securities lending reinvestment proceeds."
We then asked, "What's the biggest challenge managing your money funds? Larkin answered, "I think it would really be capacity issues. Twenty five years ago, we had a lot more banks that issued hundreds of millions of dollars in CDs every day. In the commercial paper space over the last two years, there has been tremendous consolidation and less issuance. It's been more and more difficult to find corporate issuance day to day. The asset-backed market has shrunk considerably the last two years."
Geser added, "Another dimension of capacity risk is correlation risk. To the extent that the major issuers in the markets are financial intermediaries, the concentration within available 2a-7 capacity has gone from a more robust tier-one corporate credit ecosystem to one primarily consisting of financials. Asset backed commercial paper give us an opportunity to at least replace part of that. [But] now of course that entire asset class, including the multi-seller and single sponsor, has really diminished in size. Other than select corporate issuers where we can find pockets of capacity, the big issues from a credit perspective revolve around the assessment and the stratification of risks within banks."
We also asked, "Have you seen these 7-day put deals? Geser responded, "The BBVA deal was a small issue relative to their overall balance sheet, but it's an intriguing product. There are other products out there that in one way shape or form begin to resemble some of the extendable product that was issued pre-crisis. That, I think, we do have some reservations about.... [W]e are watching this with a fair degree of interest and we want to see how the market evolves."
MFI queried, "Any concerns about Europe or any pressing credit concerns in general? Geser answers, "We are somewhat more constructive with respect to the 'contagion' hypothesis. We believe that credit and individual issuers can continue to be stratified by specific variables around the contagion theme that allow you to make independent calls on specific issuers. We are comfortable with that up to a point; I would say more broadly that there are real, tangible sovereign risks globally in terms of debt metrics. Inside of the sovereign risk issue and from a credit perspective, we believe that the universal banking model will survive. But I would argue from a credit perspective that it is important to position these kinds of issuers within compartments because a lot of exogenous risks remain present."
Cardona added, "The only other comment I would like to make on Europe is from a client perspective.... We have had a lot of inquiries and client calls about what was going on, and we did see a couple of customers move to a government or treasury portfolio. But it really was very minimal, and I would say it has largely calmed down over the past several weeks." Look for more excerpts in coming days, and e-mail info@cranedata.us to request the latest issue of Money Fund Intelligence.
