All that money has to go somewhere, right? I asked
in September what was going to happen to all the money which used to be in asset-backed
commercial paper and other short-dated asset-backed securities. It seems that
a significant chunk of it has ended up at The
Reserve, a money-market funds company. Justin
Concerns about safety at other money funds have boosted Reserve, which saw
its assets rise $10 billion (to $76 billion) in just the past four weeks.
That’s a huge rise – more than 15% in less than a month – but it’s
not surprising in the context of a broader flight to quality, if The Reserve
indeed has been good at staying away from subprime.
Interestingly, Bruce Bent, the founder of The Reserve, says that subprime-backed
assets really aren’t that risky at all. He stayed away from them himself not
because they could fall in value, but because his investors might not like them:
A money fund could go into a subprime and it could take the top tranche from
a credit point of view and not have a risk of losing principal, but what they
do lose is the commitment to the soundness of the sleep of the investors.
With even bank
depositors losing money these days, soundness of sleep is a good business
to be in.