Tue, May 31, 2016
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. Americas - Australian banks sending U.S. hedge funds broke, Ryan Puerto Rico ‘rescue’ bill could be windfall for hedge funds[more]

    Australian banks sending U.S. hedge funds broke From SMH.com.au: US hedge funds are not having the best of years. Profits are hard to find, they're underperforming and the punters are losing patience, withdrawing US$15 billion ($20.8 billion) in the March quarter. They're expected to wit

  2. Investing - Billionaire Wilbur Ross likes the look of Chinese bad loans, Hedge funds are still relevant in a diversified portfolio: 4 fundamental criteria for superior manager selection[more]

    Billionaire Wilbur Ross likes the look of Chinese bad loans From Bloomberg.com: U.S. billionaire Wilbur Ross said he’s considering investing in nonperforming loans in China, as Moody’s Investors Service said that the nation has the tools to prevent a financial crisis in the near term. I’

  3. Investing - Blackstone gives pricey Canadian energy and property thumbs down, One of the most concentrated hedge fund bets is getting crushed, Facebook is hedge funds' new tech darling,[more]

    Blackstone gives pricey Canadian energy and property thumbs down From Bloomberg.com: Canada’s energy assets are uneconomic and real-estate markets overvalued, making them less attractive for investment than in the U.S. and elsewhere, according to Tony James, president of Blackstone Group

  4. Study - Only 30% of institutional hedge fund portfolios beat the benchmark[more]

    Bailey McCann, Opalesque New York: A new study from CEM Benchmarking, an independent provider of cost and performance analysis for pension funds, shows that only 30 percent of institutional investors hedge fund portfolios beat the benchmark after fees. The study provides in depth analysis of real

  5. Opalesque Exclusive: $1bn hedge fund club grows to 668 managers, continues to dominate (Part One)[more]

    Komfie Manalo, Opalesque Asia: Despite an underwhelming 2015 and a slow start to 2016 in terms of performance, one group of managers that continues to dominate the assets of the hedge fund industry is the so called $1bn club – hedge fund managers with at least $1bn in assets under management (AU