Asset managers and investment banks will significantly reduce their exposure to structured investment vehicles in money-market funds by year's end, according to a report from Banc of America Securities.
These groups currently have about 3.1% of their assets under management invested in SIVs, but are predicted to drop their exposure to 1.4% by the end of January and as low as 0.4% by mid-2008. SIVs have been among the hardest hit credit markets in the recent meltdown.
"Despite SIV exposure, assets have continued to flow into money funds, which currently total about $3 trillion," said Banc of America analyst Michael Hecht. "We predict that [Charles] Schwab will see the sharpest drop-off in SIV exposure by year-end."
Approximately $524 billion in new assets have flowed into money funds so far this year, representing a 246% increase from the same time last year, Hecht said.
"The sharp increase in inflows in 2007 is a function of not just a flight to quality but also retail money funds' continued yield premium vs. bank deposits," he said. "Despite near-term seasonal challenges, brokers and asset managers' outlook [is] favorable based on our strategists' view of above-average economic growth and upward-trending equity markets."
Analysts estimate the overall commercial paper market, which includes SIVs, has a value of about $1.9 trillion.
The U.S. market accounts for about $156 billion of the $294 billion global SIV market, the report states.