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Money market funds jack up management fees By Sarit Menahem One after another, just minutes apart, three of Israel's biggest money-market funds announced they were instituting management fees. Competition indeed showed its less attractive side on the Tel Aviv Stock Exchange on Wednesday night, as the announcements chased one another. About an hour after the closing on Wednesday, Psagot announced that it was revising the management fee on its money-market fund from 0% to 0.125% of managed assets. Theoretically, with that announcement Psagot lost its competitive edge because its rivals still charged nothing. Advertisement But lo, at 8 P.M. Pia announced the same thing, a hike from zero to 0.125% of managed assets and 40 minutes later, Prisma did, too. The three money-market funds, which together command NIS 8 billion in managed assets, will now be costing investors NIS 10 million a year. There is a fourth major player in money-market funds, Clal Pakam Platinum, which has NIS 4 billion under management and hasn't started charging management fees. Not yet, that is. One can understand the threesome's move. Because they charged no management fees, Israel's investment firms had been losing money on the money-market funds, especially as they had to invest money in marketing them. For each NIS 1 billion in managed assets, the companies were losing NIS 1.8 million a year, based on the fees that the banks charge them for distribution (meaning, selling units in the money-market funds to the public), and from fees to the government. Obviously that wasn't going to last forever. In fact, the fee of 0.125% of managed assets still doesn't cover the companies' costs on running the money-market funds. We can therefore expect more fee hikes down the line. Altogether, Israel's money-market funds run about NIS 20 billion in assets. They were launched at the urging of the Israel Securities Authority to serve as alternatives to traditional bank deposits. To keep money-market funds low-risk, the watchdog handed down restrictions on their investment policy. That in turn made it difficult for the investment firms to make the funds stand out against the pack of alternative investment vehicles. One result was costly, and aggressive, ad campaigns. Another was nonexistent or low management fees. Meanwhile, Gilad Shimoni over at Excellence says the firm doesn't mean to charge management fees for the time being, even though the money-market funds are losing money. "The whole industry should keep to zero management fees for at least a year," he chides the competition. "These are very important products. They offer an alternative to bank deposits, which hold NIS 300 billion of the public's money. The whole industry should lend a hand to educating the market, so the public comes to prefer these funds to deposits. We have remained with zero management fees and are happy to lead the trend." Bookmark to del.icio.us   History in the making N.Y. governor pays historic visit to Orthodox synagogue for Sabbath services. Under the rubble Five Palestinians suffocate to death after Egypt blows up tunnel.

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