Migdal Capital Markets VP marketing Uri Shmueli writes in the Money Talks blog that money market fund managers faced massive withdrawals by investors and reversed their decision to charge management fees.
In the past couple of days, money market fund managers announced that the era of zero management fees was coming to an end and large fund managers decided to begin charging fees beginning on August 1. Prisma Investment House Ltd., Psagot Investment House Ltd., and Harel Pia Mutual Funds Management Ltd. announced that they would charge a fee of 0.125% on assets managed in money market funds.
Migdal Capital Markets Ltd. also decided to charge a management fee, but Clal Finance Batucha Ltd. (TASE:CLFN) and Excellence Investments Ltd. (TASE: EXCE) decided to continue their zero-fee policy on money market funds.
After the report of increased management fees in "Globes", Migdal Capital Markets reversed course and decided to keep the zero-fee policy at least through the end of the year. Shmueli said, "We thought it would be a mistake to raise the management fee at this time because money market funds are still warming up their engines and they should be given an additional advantage over deposits." He added, however, "Over time, fund managers will have to raise the management fees given the advantage over the alternatives."
Psagot also announced that it would keep its zero-fee policy. It said, "We considered the measure in advance, examined a number of scenarios is advance, and that was the decision reached."
Shmueli wrote, "There's a great behind-the-scenes drama in this story, which has been going on since this morning. The public, which has gotten used to free gifts at money market funds, woke up to a new reality this morning and began massive withdrawals of money deposited in the funds of Psagot and Clal Finance. Psagot sensed the scale of the withdrawals and reversed its decision. The strategy of the investment houses' executives was the same: to bleed their competitors and see who would die first. We see the result this morning: nervous zigzags and inconsistency in the face of the public."
Shmueli continued, "A simple calculation of the numbers in the money market funds shows us that investment houses have lost tens of millions of shekels to date. The executives decided on a zero management fee policy in an attempt to win large market shares and raise as much money as possible. The result is that they spent millions of shekels on advertising the funds, millions more on distribution fees to banks for the funds, and are bleeding each other in the name of competition."
Published by Globes [online], Israel business news - www.globes-online.com - on July 31, 2008
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