Sat, Feb 25, 2017
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. Institutional investors plan to raise allocations to alternative assets in 2017[more]

    Komfie Manalo, Opalesque Asia: A survey by Context Summits Miami showed that nearly 72% of institutional investors and family offices plan to raise their allocations to alternative asset managers this year, suggesting continued strong demand for the industry. "As many large, brand name f

  2. Comment - Mortgages, mergers and hedge fund fees, Fairholme's Berkowitz responds to court ruling against hedge fund suits of Fannie Mae[more]

    Mortgages, mergers and hedge fund fees From Bloomberg.com: Yesterday the U.S. Court of Appeals for the D.C. Circuit handed down an odd decision in a lawsuit over the government's nationalization of Fannie Mae and Freddie Mac. The key issue is what's called the "Third Amendment," the 2012

  3. Investing - Hedge funds continue to chase the herd in record Momentum wager, Marshall Wace bets grocer Sainsbury may need rights offering, Hedge fund net exposure has started to retreat, David Tepper's Appaloosa fund makes a huge buy, The 10,000-mile journey to Short Australia, Skeptical hedge fund investors grill Evan Spiegel about Snap's I.P.O.[more]

    Hedge funds continue to chase the herd in record Momentum wager From Bloomberg.com: Hedge funds can't get enough of momentum - even if it means embracing an investing strategy they hate. Loosely defined as betting on shares that went up the fastest over the preceding nine-to-12 months, h

  4. Opalesque Exclusive: Swiss investors take fund seeding and acceleration into their own hands[more]

    Benedicte Gravrand, Opalesque Geneva: Banque Bonhote, a 200-year old Swiss private bank, last year launched a community of investors - heads of Swiss family and advisory offices and wealth managers - with the aim of co-investing in the kind of managers they wanted to invest in, either by way of s

  5. K2 Advisors : Why We Like Activist Hedge Fund Strategies and Some Thoughts on Alpha[more]

    Matthias Knab, Opalesque: Rob Christian, Senior Managing Director, Head of Research K2 Advisors, Franklin Templeton Solutions, writes on Harvest Exchange: When d