A man who pokes at inflation with one-liners on merits of money funds

William Donoghue had just introduced a speaker at his own two-day forum on money-market mutual funds. As the publisher of a money-fund newsletter walked away from the platform, the speaker -- Fred Newcomb, vice-president of the Scudder Funds -- said: "I always like being introduced by Bill. He's the only guy I know who's a legend in his own mind."

Mr. Donoghue laughed as heartily as everyone else in the audience. The tall, slightly rotund, bearded Mr. donoghue is a promoter, and he and the audience knew it. He promotes money-market funds; he promotes successful fund managers; and without embarrassment he promotes himself.

It's no accident that, in the last year, he has had "12 or 13, I'm not sure how many" profiles written about him by various newspapers, magazines, and wire services.

As the money funds have "growed" like Topsy, toting up more than $76 billion in assets, Mr. Donoghue has held the unique position of being the most visible spokesman for the industry not officially connected with a particular fund or group of funds.

A frequent speaker on the investment seminar circuit, he has cultivated the clever one-liners that will keep an audience both awake and entertained through a 45-minute talk on financial markets. He has also developed a repertoire of quotable lines that are easy for newspaper reporters to incorporate in their stories.

"When reporters call me, they know they're going to get a good quote," he says unabashedly.

The reporters' calls, the seminar speeches, the newsletters, and -- most recently -- a book on money-market investing are all part of Mr. Donoghue's strategy of self-promotion, a strategy that helps him fulfill his desire to be a teacher.

"I'm teaching people how to survive high inflation," he says. For too long, he believes, people have been faithfully bringing their precious savings to bank passbook accounts that pay a maximum interest of 5 1/2 percent. People who do this when inflation is running at 12 or 13 percent "are losers to the banks," he says.

As promoter of an industry that has been blamed by banks and savings and loans for taking away billions of dollars in deposits, Mr. Donoghue acknowledges a "friendly rivalry" between the money funds and banks. But it is a competition the banks will have a hard time winning as long as their interest rates are so much lower, he notes. And until that changes, he adds, "I won't accept lower yields just so General Motors can get a lower prime."

The banks' interest rates will start to catch up as a banking deregulation law Congress passed last year takes effect. by 1986, all interest rate ceilings for the banks and savings institutions are to be lifted, allowing them to offer the highest rates they can afford.

But this development does not worry Mr. Donoghue. "I don't think the banks will ever conceive of a product that will truly compete with money funds," he says with his usual aplomb. "Banks can't offer investors the privilege of switching to alternate investments if interest rates drop. Money funds can do this and be in the right place at the right time."

Money funds are in a position to move money faster."

Many people, particularly bankers, have criticized Mr. Donoghue for what they see as his one-sided promotion of money funds. While touting the funds' high yields, critics charge, he fails to point out the risks -- that money funds are not insured against losses, as are bank deposits.

"Sure, there are risks," he retorts. "But there's no way to make any money without some risk." This risk can be diluted significantly, he adds, by selecting funds carefully and diversifying assets, not relying on one fund for all investments, and by a willingness to move money to different types of funds as circumstances change.

Before settling in as a money-fund guru, Mr. Donoghue moved around a bit himself. An accountant by training, Mr. Donoghue lived through one seven-year period when he was fired from three jobs. That was when he decided to go back to college for his master's in business administration.

To help finance the effort and to feed his family, he began giving seminars on cash management. It was while he was conducting some of these seminars at the University of Pennsylvania's Wharton School that he met Daniel Butler, who was looking for a buyer for his Money Fund Report. Mr. Donoghue bought the report for $14,000 in 1977, just as the industry was coming out of a nearly disastrous period when declining interest rates actually fell below bank passbook rates. Professional investors were leaving the money funds in droves, and the so-called "average" investor had hardly heard of money funds.

Since then, of course, the fortunes of money-market funds -- and of Mr. Donoghue -- have expanded considerably. In just the last three years, money-fund assets have jumped from $5 billion to about $75 billion. And Mr. Donoghue has increased his publications to include a weekly listing of money-fund yields and assets which is reprinted in many newspapers around the United States, a comprehensive directory of money funds, a money-market letter for general investors, and a report for portfolio managers.

In addition, he sponsors an annual seminar on money funds and is now anticipating the revenues from his book, "William E. Donoghue's Complete Money Market Guide," published this month by Harper & Row.

"I hope to make enough money from the book to invest in some money funds," he jokes.