Because I know you want to read more about institutional money market funds

  • Share
  • Read Later

I used to work at Mutual Funds magazine, before Time Inc. shut it down, so give a girl a break for caring about the following.

Yesterday American Beacon, a firm that manages $30 billion in assets, sent out word that for the foreseeable future if institutions want to cash out of its money market fund, they’ll have to take at least part of their redemption in securities.

American Beacon’s money market portfolio is pretty much all in bank CDs—super-safe stuff—but with the hysteria earlier in the week in the wake of Reserve Primary breaking the buck, investors withdrew about half of all assets in American Beacon’s fund over the course of four days, leaving it at $7.3 billion as of Sept. 18.

That was a problem because there was such a flight to quality in progress—to Treasuries, basically—that American Beacon couldn’t even sell its 3-month CDs at what it considered a fair price.

I asked American Beacon chairman William Quinn what happens now that confidence in money markets seems to have been restored, and he said: “We’re going to continue this policy until markets get back into fashion.”

In the meantime, American Beacon won’t be reinvesting in CDs when the ones it currently holds come due. They’re going to an all-cash all-cash portfolio: only investing in overnight instruments like time deposits and repos.

It’s swell that Treasury is setting up a program to insure money markets, but apparently we’re still not back to believing in the safety of CDs. And that’s a little scary.

I also should say, considering how managers of cash portfolios have behaved this week, that a day after instituting its policy, American Beacon saw redemptions practically come to a halt. On Friday about $100 million came out. But $50 million also went in.

Barbara!