Fund management companies in Europe and the US spent at least $12.1bn (€9.2bn) to preserve the net asset values of…
…their money market funds through the financial crisis, even though they are not legally obliged to do so.
Data compiled by Moody’s Investors Service revealed the extent of manager support for money market funds since their introduction, particularly at the height of the 2007-2009 financial crisis.
The report, entitled Sponsor Support Key to Money Market Funds showed that least 20 managers of funds in the Europe and the US spent a total of at least $12.1bn, before tax, to safeguard the net asset values of the funds which had to have a constant net asset value through the credit losses, credit transitions or liquidity constraints that resulted from the crisis.
According to the rating agency’s research 62 funds, including an estimated 26 funds in Europe and at least 36 funds in the US, received financial and balance sheet support from their sponsor or parent company during the financial crisis between August 2007 and December 31, 2009.
Moody’s senior vice president and author of the report Henry Shilling, said: “Fund managers, which are typically financial institutions, stepped in to help their funds in times of market stress, enabling them to maintain their constant net asset value. Also referred to as sponsors, the fund managers don’t have a legal or regulatory obligation to do so, but, with limited exceptions, they have stepped in to protect their franchises and reputations.”
Throughout their history, both in the U.S. and in Europe, more than 200 funds, including rated and unrated funds, were the beneficiaries of some form of sponsor support, without which they would have “broken the buck.”
Even prior to the financial crisis of 2007-2009, Moody’s identified no fewer than 146 funds that, if not for sponsor intervention, they would have broken the buck, which is equivalent to suffering mark-to-market losses of more than 50 basis points.
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