Extraordinary Cooperation Puts End to Run on Funds
September 29, 2008
In the face of the nation's financial crisis, our industry has shown tremendous cooperation and fortitude, and we have its top leaders and trade association to especially thank for the sound direction they have so rapidly given to investors and the federal government in recent days.
With a $186.6 billion run on money market mutual funds in the week ended Sept. 19, there was a real danger that investors could have lost confidence not only in money market mutual funds but in all investment classes, and run en masse for the exits.
Thankfully, a number of key, influential chief executive officers of leading mutual fund companies, along with Investment Company Institute President and CEO Paul Schott Stevens convincingly reached out to the federal government on how to stem the tide. The result is the government's promise of $50 billion in insurance for money market funds, the availability of $230 billion to commercial banks to buy back mortgaged-backed commercial paper from fund managers and the backing of a number of individual fund companies and brokerages for many mutual funds.
The ICI worked closely with the Federal Reserve, Department of the Treasury and the Securities and Exchange Commission to, as Stevens put it, "perfect their initiatives to restore liquidity to the money markets. The direct involvement of senior executives in our industry, and the input provided by so many member firms, have been of enormous assistance as the government has sought to stem the crisis."
Legions of mutual fund companies have wisely issued advertising, e-mail and web campaigns to allay investors' fears. Not only that, but they have shorn up money market funds with other assets to make investors' $1 net asset values whole. And last week, in an extraordinary display of cooperation, Federated Investors extended redemptions in kind in one of its money market funds for investors in Putnam Investments' $12.3 billion Prime Money Market Fund, which it had suddenly shut down under the pressure of more than $200 million in redemptions in one day.
These actions have convinced the general media to advise Americans that money market funds remain a sound investment choice.
As the crisis continues to unfold, let us continue to rise in unison to the occasion to maintain investors' faith.
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