Crane on Crisis in ignites Video
Earlier this week, mutual fund industry news source ignites posted a video interview featuring our Peter Crane entitled, "Video: Money Fund Guru Post-Crisis: 'It's Shocking That Money Funds Survived'." ignites Associate Editor Beagan Wilcox Volz comments, "So it is the anniversary of the 2008 financial crisis, and one of the biggest issues -- if not the biggest issue -- for the asset management industry was money market funds and the Reserve Primary Fund breaking the buck in September of 2008. And as you well know, after that came two rounds of SEC reforms. I'm wondering how you think the industry has changed in the last decade. You could tell us the three biggest changes that you've seen." Crane responds, "I think it was the only time that money market funds have been mentioned on the front page of USA Today, or a president has mentioned money market funds, that week when the Reserve broke the buck. Since then, the biggest change is really the shift from prime to government -- $1.1 trillion moved from the prime general purpose funds into government funds. It's been trickling back, but most money funds now -- 73%, 75% -- are government funds. So like with a lot of crisis in general, things get safer, but they get less exciting as well. They get less yield in a little bit. So that shift from prime to government is the big change." He explains, "The second thing I'd mention is really the loss of innocence. The fact that a money fund broke the buck, really -- it's going to take a long time to repair that confidence. I mean, their record was so stellar prior to that. You just had trillions of dollars going into them, and investors expected they were money good. They were $1 per share. They thought that would always be the case, and they learned otherwise.... But the other big change wasn't directly related to the crisis, but really the Federal Reserve cutting rates in reaction to Lehman Brothers and Reserve and all the financial shock that occurred. Rates dropped from 5% to 0%, and now we're slowly climbing back. So that really whipsaw in rates, and the zero-yield environment was even a bigger negative, even a bigger impact than the regulations.... It was a long desert. I mean, it's shocking that money funds survived."
