All Money Funds Are Not Created Equal

When I created the money fund more than 35 years ago, the principles were clear and they haven’t changed: safety of principal, liquidity and a reasonable rate of interest. Meaning, you’re not going to get rich in a money fund, you’re going to get your money back and a reasonable rate of interest.

As uncertainty hit the market in mid-summer as a result of the subprime debacle, the media came directly to The Reserve. In each interview, I stated what investors should be looking for in a money market fund and, most importantly, why a firm like The Reserve excels in volatile times.

The bottom line: Your money fund is supposed to bore you into a sound sleep—it’s not supposed to make headlines because it’s holding XYZ paper or because it’s financing subprime mortgages. This is a key tenet of the money fund as The Reserve created it and is being ignored as many money market funds have exposed their investors to unnecessary concern and risk.

Investors should demand transparency: become familiar with the portfolio holdings and pay more attention to who is watching their cash and to just how significant cash management is to that organization. At The Reserve, cash management is everything. In fact, it is the only thing.

Contrary to popular belief, all money funds are not the same, and these differences were made quite vivid over the last two months.