This month Money Fund Intelligence profiled the Dreyfus money funds and interviewed several veteran members of BNY Mellon'​s new Cash Investment Strategies unit, one of the world'​s largest. We spoke with Charles Cardona, President of The Dreyfus Corporation and BNY Mellon Cash Investment Strategies, Patricia Larkin, Chief Investment Officer of CIS for the Taxable 2a-​7 and Tax-​Exempt Money Funds, and Louis Geser, Director of Short Duration Credit Research. Excerpts from our Q&​A follow.

First we asked, "What'​s new with Dreyfus, BNY Mellon and CIS? Cardona told MFI, "We'​ve been working to integrate all of the BNY Mellon short duration, fixed income activities under a division of The Dreyfus Corporation called BNY Mellon Cash Investment Strategies.... [​W]​e are managing over $​550 billion dollars in terms of assets within short duration fixed income. Our goals were three-​fold. First, we wanted a unified credit and risk analysis approach supporting all of our separate products under the short duration fixed income space. Second, this has enabled us to consolidate a large portion of our distribution and client coverage efforts across different products. Third, [​it'​s allowed us to] provide all CIS constituents with a consistent process across all of our portfolio activities whether it is money market funds, bank commingled funds, separate accounts, stable value, or securities lending reinvestment proceeds."

We then asked, "What'​s the biggest challenge managing your money funds? Larkin answered, "I think it would really be capacity issues. Twenty five years ago, we had a lot more banks that issued hundreds of millions of dollars in CDs every day. In the commercial paper space over the last two years, there has been tremendous consolidation and less issuance. It'​s been more and more difficult to find corporate issuance day to day. The asset-​backed market has shrunk considerably the last two years."

Geser added, "Another dimension of capacity risk is correlation risk. To the extent that the major issuers in the markets are financial intermediaries, the concentration within available 2a-​7 capacity has gone from a more robust tier-​one corporate credit ecosystem to one primarily consisting of financials. Asset backed commercial paper give us an opportunity to at least replace part of that. [​But] now of course that entire asset class, including the multi-​seller and single sponsor, has really diminished in size. Other than select corporate issuers where we can find pockets of capacity, the big issues from a credit perspective revolve around the assessment and the stratification of risks within banks."

We also asked, "Have you seen these 7-​day put deals? Geser responded, "​The BBVA deal was a small issue relative to their overall balance sheet, but it'​s an intriguing product. There are other products out there that in one way shape or form begin to resemble some of the extendable product that was issued pre-​crisis. That, I think, we do have some reservations about.... [​W]​e are watching this with a fair degree of interest and we want to see how the market evolves."

MFI queried, "Any concerns about Europe or any pressing credit concerns in general? Geser answers, "We are somewhat more constructive with respect to the '​contagion' hypothesis. We believe that credit and individual issuers can continue to be stratified by specific variables around the contagion theme that allow you to make independent calls on specific issuers. We are comfortable with that up to a point; I would say more broadly that there are real, tangible sovereign risks globally in terms of debt metrics. Inside of the sovereign risk issue and from a credit perspective, we believe that the universal banking model will survive. But I would argue from a credit perspective that it is important to position these kinds of issuers within compartments because a lot of exogenous risks remain present."

Cardona added, "​The only other comment I would like to make on Europe is from a client perspective.... We have had a lot of inquiries and client calls about what was going on, and we did see a couple of customers move to a government or treasury portfolio. But it really was very minimal, and I would say it has largely calmed down over the past several weeks." Look for more excerpts in coming days, and e-​mail info@​cranedata.​us to request the latest issue of Money Fund Intelligence.

The June 2010 issue of Crane Data'​s Money Fund Intelligence newsletter, which goes out to subscribers this morning, features the articles: "MMF Reforms, Europe, Yields Climb Off Floor," which discusses shortening maturities and slowly unwinding fee waivers; "Money Funds in Europe: Q&​A w/​IMMFA'​s Le Coz," which interviews Institutional Money Market Funds Association Chairwoman Gail Le Coz; and "Plaze on History of 2a-​7, Hinting at PWG Content," which reviews comments from a recent SEC Investor Advisory Committee presentation. MFI also contains money fund news, performance statistics, rankings and our benchmark Crane Money Fund Indexes. MFI XLS, our monthly spreadsheet "​complement" to MFI, contains much more data, such as percentile rankings and fund family rankings too.

The lead article in our June issue says, "Concerns over European exposure and the impact of the first phase of the SEC'​s Money Market Fund Reforms going into effect dominated the money fund landscape in May. But there was a fair amount of good news during the past month too. Asset outflows slowed considerably, and yields continued their slow climb off of the zero floor.... [​F]​fund managers appear to be enjoying a reduction in fee waivers due to higher repo and now LIBOR rates."

Our interview with IMMFA'​s Le Coz asks, "How will the CESR news impact IMMFA and money funds in Europe? She tells us, "The impact is different for us, as we already had the IMMFA Code of Practice, as well as the guidelines from the ratings agencies in order to maintain the AAA rating. So, we already had our European money market fund rules by virtue of the Code and the rating. With the changes that we made to the Code last year, we have a 60 day WAM, we have a 120 day WAL, we have maturity limits, and we have credit limits by virtue of the credit rating agencies guidelines."

Finally, the SEC'​s Bob Plaze recently discussed the pending `​President'​s Working Group report and its discussion of possible changes and options for money funds, saying, "They are really complex problems, and the problem is that ... if you pull here, you fix one problem and you created another set of problems over here. So you go over here and pull here and the same thing happens. What we'​ve been doing is working with the Treasury, Federal Reserve Board and CFTC to come up with a paper that I hoped to be able to present with you this afternoon. But unfortunately it has not been issued yet. The Treasury controls that."

Look for more excerpts in the coming days, and let us know if you'​d like to see the latest issue.

The May edition of Crane Data'​s Money Fund Intelligence XLS, our monthly spreadsheet that tracks money fund statistics and performance, shows that money fund yields inched higher for the second month in a row in April. MFI XLS also showed that assets fell by over $​100 billion for the second month in a row. It also showed that repo holdings declined and the the percent of holdings maturing in 7 days jumped during the month.

The Crane 100 Money Fund Index, a simple average of the largest taxable money funds, 7-​Day Yield increased to 0.​06% as of April 30 from 0.​05% at the end of March and a record low 0.​04% at the end of February. The Crane 100 30-​Day Yield (​annualized) also rose to 0.​06%. Its 1-​month return (​unannualized) was 0.​00%; its 3-​month return was 0.​01%; its YTD return was 0.​02%; its 1-​year return was 0.​13%; its 3-​year annualized return was 2.​02%; its 5-​year return was 2.​93%; and its 10-​year return was 2.​71%.

Our broaded Crane Money Fund Average yielded 0.​03% as of April 30, while our Crane Institutional MF Index yielded 0.​05% and our Crane Retail MF Index yielded 0.​01%. The Crane Tax-​Exempt MF Index yielded 0.​05%, up from 0.​04% a month earlier. (​For more Crane Money Fund Indexes, ask to see our Money Fund Intelligence, MFI XLS or Crane Index products, or type 'ALLX CRNI' on a Bloomberg terminal.)

MFI shows money fund assets declined by $​113.​1 billion, or 4.​0%, in April to $​2.​703 trillion. This follows a decline of $​159.​2 billion in March, and marks the 14th month out of the past 15 that assets have declined. Year-​to-​date, money funds assets have decreased by $​481.​8 billion, or 15.​1%, and over 12 months, money fund assets have decreased by $​872.​1 billion, or 24.​4%. Government and Treasury funds continue to lead the declines -- Government (​including Treasury) assets declined by 8.​0% in April and have declined by 40.​9% over 12 months to $​476.​7 billion.

Crane'​s MFI XLS Portfolio Composition averages show Repo holdings fell from 25% to 22% in April, while Government securities holdings increased to 20% from 19%, Treasury holdings increased from 16% to 18%, and CP holdings increased from 12 to 13%. CDs remained at 15%, ABCP fell to 4%, FRNs rose to 4%, Corp holdings remained at 2%, MTNs were at 1%, and "​Other" was at 2%. Crane Data'​s % Maturing in 7 Days statistics show the average fund'​s weekly liquidity rising to 42% from 39% a month earlier.

ICI'​s separate Portfolio Holdings series, which covers data through March, showed that CDs (​at 19.​2%, or $​502.​7 billion) regained the largest money fund holding spot from Repo (​which fell from 19.​9% to 17.​2%, or $​449.​3 billion). Government Agency securities became the 2nd largest holding with 18.​1% (​up from 17.​4%), or $​474.​9 billion, while Commercial Paper took the No. 3 spot, rising to 17.​5% from 17.​2% in March ($​457.​4 billion). Treasury securities held by taxable money funds totalled $​382.​5 billion, or 14.​6%.

Our May 2010 issue of Money Fund Intelligence features the articles: "Money Fund Intelligence Celebrates 4th Birthday," which reviews the history of Crane Data'​s flagship newsletter; "Capital Preservation Still In at American Century," which interviews Portfolio Managers Denise Latchford, Todd Pardula, and Lynn Paschen; and "ICI Fact Book Says Outflows From Low Rates," which excerpts from the Investment Company Institute'​s annual fund analysis and statistics. Look for excerpts in the coming days or let us know if you'​d like to see the latest issue.

Money Fund Intelligence, Crane Data'​s flagship newsletter, celebrates its fourth birthday this month. The money fund information company was founded in May 2006 by Peter G. Crane and Shaun Cutts. As we wrote in this issue, "​MFI is written for both money market investment professionals and investors. Our core mission is to deliver low-​cost and high quality money fund information, performance statistics, and indexes. We hope we have succeeded to date."