The tide has finally turned for prime money-market mutual funds.
From mid-October through Feb. 11, assets in such money market funds those that invest in short-term corporate and bank debt, but not government securities grew 13.45% to $1.98 trillion, according to the Investment Company Institute, the mutual fund industry's Washington-based trade group.
Total money fund assets were $3.9 trillion on Feb. 11, up from $3.46 trillion on Sept. 17, ICI said.
Once considered among the safest and most uninteresting investments, prime money funds were thrust into the spotlight in mid-September when the prime fund managed by The Reserve Management Co. Inc. of New York "broke the buck" and redemptions were frozen. The fund, which had invested in securities of Lehman Brothers Holdings Inc. of New York, is being liquidated and its value is 97 cents a share.
"The Reserve (Primary Fund) is being seen more as an isolated incident because no one else broke the buck," said Peter Crane, president of Crane Data LLC, a Westborough, Mass.-based research firm focused on the money fund industry.
Custodian TD Ameritrade Holding Corp. of Omaha, Neb., helped restore confidence when it stepped in with $35 million to bail out its clients and those of its affiliated registered investment advisers after the Reserve Primary Fund broke the buck, said Veena Kutler, principal at the Garnet Group LLC, Bethesda, Md., which manages $150 million in assets.
Other money managers also learned something from the Reserve experience, she said.
"They are making sure the pricing on the holdings is accurate, which gets rid of a lot of the risk," Ms. Kutler said.
"Among investors, some of the emotions are starting to calm down," said Matthew Illian, a wealth manager with Marotta Wealth Management Inc., Richmond, Va., which has $120 million in assets under management. "People are able to discern the difference between a collateralized debt obligation, a structured investment vehicle and the type of money market fund they own."
To be sure, the Treasury program guaranteeing money fund assets held as of Sept. 19 helped instill investor confidence.