Reforms to money funds don't go far enough, Neuberger executive says

The reforms to money market funds that took effect last month aren't enough to address the problems associated with these investments, a Neuberger Berman executive said today.
JUN 09, 2010
The reforms to money market funds that took effect last month aren't enough to address the problems associated with these investments, a Neuberger Berman executive said today. Although the new rules “are a step in the right direction, they fail to address the unrealistic expectations that one should have unlimited liquidity and some kind of return,” said Bradley C. Tank, managing director, chief investment officer of fixed income at Neuberger Berman. He made his comments during a panel discussion at a media event for the firm in New York. Money market funds made headlines in 2008 in the wake of the collapse of Lehman Brothers Holding Inc. when The Reserve Primary Fund “broke the buck,” meaning that its net asset value fell below $1 a share. To address concerns that more money market funds may have liquidity issues, the Securities and Exchange Commission passed rules mandating that money funds hold more liquid assets, limit their investments to only the highest-quality securities, and reduce the average maturity of the securities in their portfolios. The rules also mandate that the taxable money market funds hold 10% of asset in cash or other highly liquid securities. “We should take further steps,” to address investors' unrealistic expectations, Mr. Tank said. However, requiring the funds to be insured, as some fund companies have suggested, isn't the answer, Mr. Tank said. “You can effectively lower yields and raise expenses by requiring insurance,” he said. Or, Mr. Tank added, firms can restructure their money funds to better offer liquidity. “I prefer that.” In other comments, Neuberger Berman executives expressed concerns about the amount of money going into fixed-income assets. Sandy M. Pomeroy, managing director, portfolio manager at the firm, said that “the notion that bonds are safe,” is the biggest fallacy she sees today. “People are not taking into account interest rate risk or purchasing power risk,” she said. Mr. Tank noted that bonds are at a very high risk of losing money. “From the standpoint of defining risk as the probability of losing money in a given calendar year, bond funds have never been more risky than they are today,” he said. The yields for three-year bond funds are under 1%, Ms. Pomeroy said. “There isn't a lot of value,” she said.

Latest News

Newsom wants nationwide billionaires tax as presidential bid may loom on the horizon
Newsom wants nationwide billionaires tax as presidential bid may loom on the horizon

“It’s time for an economic reset,” wrote the California governor, in a post on X.

Maryland regulators spank fledgling art-focused RIA Masterworks over registration snafus
Maryland regulators spank fledgling art-focused RIA Masterworks over registration snafus

Masterworks was launched in 2017 but its RIA, Masterworks Advisers, is just three years old.

Investors allege Miami operator took over $1.5 million in EB-5 scheme
Investors allege Miami operator took over $1.5 million in EB-5 scheme

One 2017 form, no broker license, and a $42 million gap they say surfaced on a webinar.

Gen X, millennials lag in retirement confidence amid knowledge gap
Gen X, millennials lag in retirement confidence amid knowledge gap

Fewer than half of Americans in their peak earning years feel on track for retirement, while many say limited financial knowledge and access to professional guidance are holding them back.

Advisor moves: Veteran-led UBS team overseeing $460 million migrates to Merrill
Advisor moves: Veteran-led UBS team overseeing $460 million migrates to Merrill

Meanwhile, Wells Fargo hauled advisors overseeing $825 million in the West Coast, while Wedbush has welcomed a seasoned professional from Stifel in California.

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income

SPONSORED Why direct indexing stopped being optional

Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.