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What do money market funds have to do with camping in the woods?

I’m Gary Gensler. Welcome to Office Hours.

There is a saying when you’re in the woods. “You don’t have to outrun the bear. You just have to outrun one of your fellow campers.”

All right, this saying may be a bit gruesome, for sure, but it helps to explain why investors might try to cash out of investments before the proverbial bear catches them.

Bear this in mind as we discuss money market funds.

When you invest in money market funds, your money is pooled together with other investors’ money. That fund then invests in reliable assets, like U.S. Government Treasuries or the debt of major corporations.

Money market funds are required to keep a certain amount of cash on hand to make it easier for investors to sell – or “redeem” – their shares, at a target value of $1 per share. During normal market conditions, money market funds are considered relatively safe and low risk.

In March of 2020, however, these were not normal times.

As COVID-19 took hold in the United States, many investors sought to withdraw their assets from money market funds, and other types of assets, and move them in what was called a “dash for cash.” Once some investors started to leave, more followed, trying to “outrun” their fellow campers — er, investors — before the funds’ price went down to goes below 99 and a half cents, also known as “breaking the buck.”

This wasn’t the first time we’d seen some stress in money market funds. For example, back in the financial crisis of 2008, we had seen a fund “break the buck” right in the middle of that fateful September.

In response to these tremors, the Commission issued rule proposals last year. These proposals are designed to enhance the transparency and the nature of assets held by the funds. They further would address the funds’ pricing in times of stress.

I think these steps would make money market funds more resilient.

That bears good news for investors.