Wed, Aug 20, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Hedge funds moving to active cash management as money market rates disappoint

Tuesday, April 19, 2011

Jill King
Opalesque Industry Update - Near zero returns in money market funds are causing hedge funds and other institutional investors to find new ways to put their idle cash to work according to Horizon Cash Management.

"We’ve recently had a surge of calls from hedge funds that are seeking a better option than the poor returns they are getting from money market funds,” said Pauline Modjeski, Horizon President and Executive Managing Partner. “The good news is there are alternatives to the passive money market funds and the potential to capture extra basis points on cash balances.”

On April 1, money market returns were virtually obliterated due to an unanticipated consequence of the Dodd-Frank Act. In an effort to promote financial stability, Dodd-Frank mandated that the FDIC increase their deposit insurance fund and expand the assessment base used to calculate bank insurance premiums. Returns in both the Fed Funds market and overnight repo (repurchase agreement) market plummeted. Most players have limited interaction with the funding market, but it is critical to the bank's ability to manage their regulatory capital and has been a prudent way for investors to invest their liquidity.

Jill King, Horizon Partner and Senior Portfolio Manager, said, "The FDIC assessment has fundamentally changed the funding market and has obliterated the return associated with it.” Money market funds are one of the largest sellers of liquidity, lending out cash overnight to receive a small return of basis points. The overnight repo rate has been averaging 12-15 basis points in 2011. But with the enforcement of the assessment on April 1, the return has been reduced to a mere basis point or two. Money market funds have been dealt a double blow by Dodd-Frank thanks to a mandate that 10% of their assets must mature in 1 day and another 30% must mature within 7 days. Nearly $2.7 billion of money market funds assets now are yielding little to nothing.

“Hedge funds, mutual funds and corporate treasurers are really suffering from the blow in the rates market, while continuing to manage longer-dated cash balances in an unprecedented low rate environment,” said Ms. King.

Horizon has delivered active cash management to CTAs and hedge funds for 20 years. Based on the current market conditions and recent flurry of inquiries, they expect an upward trend. “Active cash management through separate accounts provides the opportunity to get the best return the market has to offer, while maintaining safety and liquidity, said Ms. Modjeski. “Institutional investors are finally making the move to a better cash management solution.”

Source

(press release)

bc

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing
  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Private equity follows hedge funds into reinsurance for long-term capital[more]

    From Artemis.bm: It’s not just hedge funds that are entering the insurance and reinsurance market in search of so-called long-term capital to put to work in their strategies, private equity firms targeting the space are also seeking opportunities to add assets under management. The entry of large pr

  2. North America – New York City’s next hot neighborhoods targeted with property funds[more]

    From Bloomberg.com: New York’s real estate world is filled with tales of ordinary people who bought property decades ago and saw values skyrocket to the millions. Seth Weissman is seeking investors to get in early on the next hot neighborhoods. The veteran of Goldman Sachs Group Inc. and hedge

  3. Investing – George Soros bets $2bn on stock market collapse, Warren Buffett's Berkshire reveals Charter stake, cuts DirecTV, Hedge funds lusting to cash out of MGM, Top hedge fund managers are buying Ally Financial, Hedge funds dumped 5m Herbalife shares in Q2, Paulson & Co hedge fund ups Puerto Rico real estate bet, Netflix Inc., Citigroup Inc, Google Inc are top new picks in Tiger Management’s 13F[more]

    George Soros bets $2bn on stock market collapse From Newsmax.com: Billionaire investor George Soros has increased his financial bet that U.S. stocks will collapse to more than $2 billion. The legendary hedge fund manager has been raising his negative bet on the Standard & Poor's 500 Inde

  4. Institutions – Texas Employees sets 2015 tactical plan for alternatives, CalPERS' real estate consultant cautions the pension fund's investment committee, Why Sunsuper likes hedge funds[more]

    Texas Employees sets 2015 tactical plan for alternatives From PIOnline.com: Texas Employees Retirement System will invest in up to four new hedge funds in the next fiscal year, which begins Sept. 1. Trustees approved 2015 tactical investment plans for the hedge fund, private equity and in

  5. Investors now net short S&P500 and increased Russell shorts, technicals suggest further selling[more]

    Komfie Manalo, Opalesque Asia: Market Neutral funds increased their market exposure to -1% net short from -6% net short last week, according to Bank of America Merrill Lynch’s Hedge Fund Monitor. The report also added