I've seen a lot of hopeful analysis about how assets in money market funds have soared this year, leading to conclusions that there is a ton of money lined up and ready to pile into stocks. And while money fund assets are up more than $200 billion this year, I'm not as optimistic that this cash will flood into stocks and create a V bottom.

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Peter Crane, vice president and managing editor of iMoneyNet.com, points out that retail money funds grew 7.6% in the first quarter. That seems like impressive growth, but it is not a lot more than the 6.6% in growth in the first three months of last year. Assets in retail money funds tend to grow in advance of tax time, and then fall off after April 15.

Assets of retail money funds fell by more than 4% in the month following April 15 last year as people squared up with the Internal Revenue Service. With a huge amount of capital gains due this year (despite the drop in equities, most anyone who held stocks for more than a year realized gains, and many stock funds left owners with hefty tax bills), I believe we may see similar outflows from money funds this year.

The real surge in money funds has been on the institutional side. Crane points out that these have climbed 14.6% this year, compared to 3% in the first three months of 2000. While this is a big number, I also believe it is not as positive for equities going forward as it might seem.

Unlike stock and bond funds, which are priced daily, money market funds use a technique known as amortized cost pricing. That means holdings in money funds go on the books at the rate at which they were acquired, and stay at that rate no matter what happens to interest rates. Funds are allowed to do this because their holdings are of such short maturity that price changes due to movements in interest rates are so small that the net asset value shouldn't normally deviate from $1.

This creates an interesting arbitrage for money fund shareholders. This arbitrage is often taken advantage of by institutional players, and can be a nightmare for money fund managers.

When rates go up, funds are stuck with relatively low-yielding holdings. Institutions will redeem fund shares and buy the same type of instruments, giving themselves a higher yield until the fund's holdings mature and can be reinvested at higher yields. When rates fall, the reverse happens. Institutions take their maturing direct holdings and put the money into funds, which still have some securities on the books at older, higher rates.

With the Fed having cut rates by 150 basis points this year, I get the sense that this game accounts for much of the increase in institutional funds' assets this year. So a lot of the growth in funds may not be due to money itching to get into the stock market, but may simply be money shifted from direct instruments by corporate treasurers and pension plans.

While I'm not as optimistic as some that all of this money will flow to equities, some of it is unquestionably looking for a home. Some money funds that I track normally take in a lot of money at the start of the year as pension plans and 401(k)s make their annual contributions, and then see that money flow right out as it gets allocated to the stock and bond markets. This year, those money funds had their normal early-year inflows, but have not seen outflows. This may have contributed to stocks' poor showing in the first quarter.

At the end of last year, I said that, after the Fed, the flow of pension fund money (pension funds own more stocks and bonds than mutual funds) might be a big determinant of performance this year. As some of it seems to be sitting in money funds, it is probably a good idea to get a handle on where it is likely to go.

Allocating a multibillion dollar pension is like steering a battleship. Unlike a hedge fund that can dart in and out, pension fund movements take time.

With the aid of a consultant, the fund determines what an appropriate mix of asset classes should be. The consultant then issues a Request for Proposals -- called an RFP -- that investment managers respond to. The consultant sorts through the managers who have responded to the RFP and presents a number of finalists to the fund. The fund will pick a manager (or managers) for each asset class, and then send the money to that manager. The process can take anywhere from a few months to year.

I don't believe a lot of pension money will be flowing into tech soon. I get the sense that many pension funds were overweighted in tech last year. The subsequent decline in the tech sector has probably brought them back to a more normal weighting. Palm's (PALM:Nasdaq - news - boards) and Nortel's (NT:NYSE - news - boards) announcements last week show that tech fundamentals are still weak, and I don't sense a burning desire on the part of pension officers to return to an overweight position.

Of the money that will move into equities, I believe that much of it will have a value bias. Steve O'Brien, the head of marketing at my old firm of David L. Babson & Co., says, "We are seeing a pickup in value RFPs, especially for small- and micro-cap."

I think some equity money will also find its way to overseas stock markets, especially emerging markets. After the emerging market meltdown in 1998, many pension officers shunned foreign markets as too risky. The extraordinary run-up in U.S. stock prices also limited the desire of U.S. investors to look offshore.

Now that the Nasdaq has shown that it can be as risky as a foreign stock market, I believe pensions may start to re-embrace the notion of diversification. O'Brien said that there has been a surge in international and emerging market RFPs. He said that "it's probably double the volume we had seen a year ago."

I believe that it makes sense to take a look at non-U.S. equities in case this flow develops. Researching and trading foreign issues can be more difficult than buying U.S. names (I'm the last guy that you would want to rely on to pick those stocks), though there are many American Depository Receipts, or ADRs, that trade in the U.S. You can also buy an exchange-traded fund, or ETF, that invests in foreign stocks (Jamie Heller recently took a look at them), or you can buy an international fund.

If you go the fund route, I'd suggest looking for a manager with a good three- and five-year track record. This will show how the manager did during the 1998 crisis. It is also the basis that many pension funds use to select a manager, and thus the manager will be more likely to own the stocks that would benefit from pension inflows.

Real estate might also benefit from pension funds' desire for diversification. Many large plans allocate a portion of their investments to real estate, and often invest directly or through pooled funds. I was fearing that the slowdown/recession we are in, coupled with the dot-com meltdown, could spell disaster for real estate (I'm an old bond guy, so I worry about everything). I still believe that overbuilt areas are subject to weakness and some cities like Boston are seeing a sharp increase in vacancies.

However, Bill Looney, managing director of DebtX.com, a trading firm for commercial loans, believes that overall weakness might be contained. He says, "In general, commercial real estate is not as leveraged as it was going into the last downturn."

Looney also feels that transactions have not been based as much on speculation. He says, "We've seen more deals that were written on existing economic assumptions rather than on peak or pro forma scenarios than before the last downturn." If he is correct, any weakness in real estate could be manageable.