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Wednesday, April 5, 2023

Pan Pushes Back Against Yellen's Mutual Fund Warning

Reported by Neil Anderson, Managing Editor

A mutual fund industry trade group's chief is pushing back against U.S. Treasury Secretary Janet Yellen's recent criticism of mutual funds.

Last week, as previously reported, Yellen called out money market funds and other open-end mutual funds as having "structural vulnerabilities," lumping them in with hedge funds and cryptocurrency. Yesterday, Eric Pan, president and CEO of the Investment Company Institute (ICI), shot back, defending the mutual fund industry from Yellen's critique.

Pan explains that, in the midsts of the recent banking crisis, far from being a source of investor panic, money market funds have been a place of refuge as investors have sent in massive inflows in recent weeks. Per ICI data, money funds now have more than $5 trillion in AUM, a record high.

"Sec. Yellen has claimed that the 'vulnerabilities of the system to runs and fire sales have been clear-cut,' in the case of money market funds. In fact, we only have to look at the events of the past month to see that deposits have moved by the hundreds of billions of dollars from banks to money market funds in large because of a run — at Silicon Valley Bank — and a fire sale, at Credit Suisse!" Pan writes. "The irony is quite remarkable."

Pan also discusses Yellen's concerns about traditional bond mutual funds, citing prior ICI findings that March 2020 bond market issues started days before bond funds started to sell in a big way thanks to outflows. And as for "first mover advantage" for fleeing investors, well, look further than SVB for a real example (not a hypothetical one) of just such investor behavior. 

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