As interest rates have declined to their lowest level in 45 years and individual investors pull cash from money market mutual funds, municipalities and other institutional investors have been moving money into the funds, the Wall Street Journal reports.
Assets in institutional money funds have grown to $1.2 trillion, a 28% increase since April 2001. Meanwhile, assets for individual investors in the funds declined 12% since that time. Individual investors have pulled cash out of the money market mutual funds looking to invest in products with better returns.
The reason the funds are an attractive proposition for institutional investors is because of a situation that makes money funds lag behind the rest of the market when yields are falling and therefore allows them to temporarily offer higher returns to investors. However, they will also lag when interest rates rise again, leading to speculation that a number of institutional investors will pull their money out when the time comes for the Federal Reserve to raise rates.
