Fri, Sep 22, 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. Asia - Hedge funds used to love shorting China. Now, not so much, Fledgling China FoFs require careful use: NCSSF, Amac, Japanese banks turn to PE, hedge funds for returns[more]

    Hedge funds used to love shorting China. Now, not so much From Bloomberg.com: A sharp devaluation. A credit crisis. And an economic hard landing. That's what some of the biggest names in the hedge fund industry were predicting for China after the nation's stocks and currency tumbled in 2

  2. Launches - Orchard launches new credit platform, ETN based on hedge fund to launch on the LSE[more]

    Orchard launches new credit platform Orchard Platform has rolled out Deals as a part of its new platform launch. With the addition of Deals to their suite of technology solutions for loan originators and institutional investors, Orchard Platform takes the next step in their evolution. De

  3. Neuberger Berman closes $1.1bn Credit Opportunities Fund[more]

    Neuberger Berman, a private, independent, employee-owned investment manager, announced that NB Private Equity Credit Opportunities Fund LP closed on $1.1 billion of limited partner commitments. The Fund seeks to invest in the secured and unsecured debt of private equity-backed companies, primarily i

  4. Capital Dynamics launches mid-market private credit business[more]

    Capital Dynamics, a global private asset manager, has launched a dedicated Private Credit Asset Management business. Experienced industry executives Jens Ernberg and Thomas Hall have joined Capital Dynamics to co-lead the company's new private credit initiative. They are based in Capital Dynamics' N

  5. ...And Finally - FAN-antic[more]

    From Newsoftheweird.com: Jeffrey Riegel, 56, of Port Republic, New Jersey, left 'em laughing with his obituary's parting shot at the Philadelphia Eagles. In it, Riegel asked that eight Eagles players act as pallbearers, "so the Eagles can let me down one last time." Riegel owned season tickets for 3