The class-action lawsuit initiated by Third Avenue Management against the Reserve Primary Fund is only just beginning and will undoubtedly make for salacious headlines in the months ahead.

The Securities and Exchange Commission, currently still preoccupied with the May 6 Flash Crash, has not given up on the idea of a floating NAV for money funds, despite adamant resistance from the industry led by the Investment Company Institute.

Then there is the matter of anemic yields. With the Fed funds rate at an historic low of 25 basis points-and expected to remain there through 2011 and perhaps into 2012-it is increasingly difficult for money fund managers to find value in the short-term fixed income and cash marketplace. Last month, the cash-yield curve caved, bringing the one-month London interbank offered rate (Libor) down five basis points to 0.26%. As a result, the top-yielding individual money market fund from, from Dreyfus, is delivering a mere 0.24%. The top-yielding institutional money fund, from Fidelity, offers not much more: 0.31%.

These yields have money market experts beginning to ask: Will sponsors continue to absorb part of a money fund's fees to prop up the net asset value?

While it would only make common sense for money market funds to avoid going out on the yield curve following Primary Fund's debacle of breaking the buck, in this low rate environment, money funds may be doing just the opposite to attract assets. After all, money market funds peaked at $3.9 trillion in assets under management in January 2009, and currently command $2.8 trillion in AUM, a 28% decline.

Then there is the matter of gauging holdings and credit quality. Moody's, a full two years after Primary broke the buck, is only just now developing a five-point rating scale exclusively for money market funds to take into account factors that proved to be critical in the credit crisis-including a fund's ability to preserve principal while providing liquidity and the likelihood of support from its sponsor in the event of a run on the fund.

Fitch just released a report showing that U.S. closed-end funds, for instance, still have $26.4 billion in auction-rate preferred shares, one of the types of instruments that froze in 2008.

Money funds, miraculously, have held steady. But for the immediate future, it's likely to be an increasingly rocky road ahead.

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