At last week’s Treasury Management Association of New England conference, Capital Advisors Group Director of Investment Research Lance Pan urged the audience of corporate treasurers and money fund professionals attending his “Check-Up on Institutional Money Market Funds Presentation to, “preserve the sanctity” of the money fund. “It’s truly a great product,” he said.
Pan discussed past episodes of troubles, but said, “No other securities product can claim the level of recognition and success of the money market fund.” He explained that money funds “price artificially at $1.00” and in exchange they “handcuff themselves” in regards to what investments they can purchase.
He poignantly reminded attendees that, “Liquidity is a state of mind,” explaining the dangers of an unanticipated run on assets. Of the only single episode of a fund “breaking the buck” in history, Community Bankers, Pan said the fund “broke the buck because the sponsors allowed it to break the buck.” Pan also said, “There needs to be liquidity that’s not market dependent.” He cited the pain that SIVs caused and reminded listeners of the “formal procedure” that the FDIC mandates bank-affiliated money fund advisors go through “before the bank can hand over the blank check.”
Finally, Pan told the Boston audience, “At the end of the day a money fund does deserve to be an important part of a treasury portfolio.” But he says to, “Do your due dilligence and make sure the money is properly managed.” He added to large investors, “We can influence how they manage,” citing examples of funds changing investment behavior based on the concerns of investors.