Money market mutual funds have broken through the $900 billion-asset mark, and observers say $1 trillion is firmly in sight.
Money funds set the latest in a string of weekly records Dec. 4, when assets soared 1.66%, to $913.93 billion, the Investment Company Institute said. Balances are growing at about an 18% clip this year, fueled in part by money funds' growing popularity as a corporate cash management tool.
"There is no reason to assume these increases are going to cease," said Walter Frank, chief investment officer of Money Letter, a newsletter that tracks the fund industry.
He said money fund balances are likely to dip at the end of December, as they usually do around Christmas. "But you get some very sharp inflows early in the year. By the end of January or the middle of February, it wouldn't surprise me" to see balances closing in on $1 trillion, Mr. Frank said.
That's good news for big banks like Mellon Bank Corp., PNC Bank Corp., and Wells Fargo & Co., which rank among the top 20 managers of money market mutual funds. In all, 93 banks managed a combined $256.3 billion in money funds as of Sept. 30, according to Lipper Analytical Services, Summit, N.J.
"It's a very important business for banks," said J. David Huber, president of Bisys Fund Services, Columbus, Ohio. The company, a unit of Bisys Group Inc., Little Falls, N.J., serves as a mutual fund distributor for about 40 banks.
While the fees for managing money funds are lower than for equity and bond funds, "the trades are larger. Corporate cash management accounts have hundreds of millions of dollars flowing in and out," Mr. Huber said.
"It's become a basic, core service for the big guys," added Stephen Schoepke, senior analyst in the funds group at Moody's Investors Service, New York.
One reason: Institutional customers are demanding a growing array of products tailored to their investment objectives and risk tolerance.
"The banks have recognized this and have been fairly aggressive - even trailblazers - in developing different product structures," Mr. Schoepke said.
For instance, the traditional money market mix of short-term securities such as Treasury bills, commercial paper, and certificates of deposit is too risky for some ultraconservative investors, so Treasury-only portfolios have come along to meet their needs.
Mr. Huber said a number of his clients - including Boatmen's Bancshares, BankAmerica Corp., and Barnett Banks Inc. - have been adding new products and new share classes to their money market lineups.
Demand from retail customers is also a big factor in money funds' growth, Mr. Schoepke said.
"More and more people are using money market mutual fund accounts as a savings vehicle than ever before," he said. "They have become a building block in the savings process for the average household."