BOSTON, Nov 19 (Reuters) - Many money market funds offered today are from firms that specialize in riskier stocks and bond funds, leading the money funds to extend themselves in search of higher yields, the “father” of the money fund said.
“The people who have been managing many of these funds are not money fund managers, not cash managers,” Bruce Bent, who with a partner created the first money market mutual fund in 1970, told Reuters in a telephone interview on Monday.
“They are asset managers of different classes of assets and they have imposed the psychology of managing stocks and bonds on money funds and they are wrong,” said Bent, who is chairman of cash management firm The Reserve.
Bent’s comments come as money market assets have grown strongly as investors sought safer avenues in volatile markets. According to industry trade group the Investment Company Institute, money market fund assets have exceeded $3 trillion.
But concerns about the stability of these funds are growing after some companies, including Bank of America Corp (BAC.N) and asset manager Legg Mason Inc (LM.N), disclosed in November that they pumped cash into the generally risk-averse funds to support them as the credit crunch hurt the values of some of their investments.
The Reserve manages $80 billion in cash assets and its money funds have never had any exposure to subprime mortgage securities or to structured investment vehicles, Bent said.
“When I created the money fund, the whole concept of this thing was safety of principal, liquidity, a reasonable rate of return and the most overriding concept was you don’t have to worry about money funds,” he said.
“And indeed some managers of money funds have lost sight as to what the purpose of the money fund was. Because of the fact that you have a stock management or a bond management mentality that’s being imposed on a money fund.”
Some asset managers, banks and brokerages are starting to realize money funds are not their core focus area and are interested in disposing them, he said.
Bent also did not see any money funds “breaking the buck”, or seeing their net asset value fall below $1 per share, as he felt they would not lose money on their investments.
“My bet is they are not going to lose a penny on it. Because there’s nothing wrong with the underlying credit. It’s just a temporary market aberration,” he said.
He also said money market funds and their sponsors were setting aside reserves for possible credit losses due to tax considerations. (Editing by Andre Grenon)