BankAmerica Corp.'s money market mutual fund business has pulled off a dramatic turnaround - less than two years after many investors had turned their heels and fled its funds.
Assets in the San Francisco-based banking company's money market mutual fund portfolios surged 55% last year, to $10 billion, a spokesman said. That boost is in contrast to 1994 when, in just a 90-day period, $7 billion went out of the company's Pacific Horizon Prime Fund.
The recipe for recovery: retail customers, which a company spokesman said contributed more than 80% of last year's inflows.
"Last year was remarkable for the expansion of money market relationships, and BofA took advantage of that environment," said Avi Nachmany, a partner at Strategic Insight, a financial research firm in New York.
In the summer of 1994, BankAmerica's money funds were blemished after the net asset values of two portfolios came dangerously close to falling below the $1 per-share range.
The funds nearly "broke the buck" when institutional investors piled out of the funds, prompting the banking company to cough up $67.9 million dollars to prop up the value of the shares.
The institutional market "has a temporary dimension to it," Mr. Nachmany said. "So BofA focused on building retail relationships."
The spokesman for BankAmerica declined to comment on how it attracted retail customers.
But with money fund yields on the rise last year, it's not hard to put the finger on the lure: The average 12-month return in 1995 was 5.49%, the highest since 1991, according to IBC/Donoghue, an Ashland, Mass., mutual fund tracking firm.
Taxable and tax-free money market mutual funds assets reached $725.2 at yearend 1995, a 26% jump from the year before, according to IBC/Donoghue.
For BankAmerica, retail clients are proving to be a more reliable source of assets for money funds because they're not as sensitive to interest rate changes as institutional investors, Mr. Nachmany said.