Demystifying Private Liquidity Funds
Are you homesick for the good old days of dollar-in, dollar-out prime money market funds? It’s only been a few months since the SEC imposed floating net asset values (NAVs) on institutional prime funds, along with optional redemption fees and liquidity gates. Since then, treasurers have been scurrying for alternatives offering the same liquidity and fixed dollar-per-share valuations they used to enjoy but finding new investment vehicles that are as easy, safe and liquid has been a challenge.
Some are considering private liquidity funds, the subject of this month’s white paper. At first glance, unregistered private liquidity funds, with stable $1/share NAVs and no liquidity gates, seem close to what many are looking for. But—and it’s a big “but”—there are material differences to understand as well. Reduced transparency, increased shareholder risk and the potential for liquidity lockups are all warning flags that even the most sophisticated investors should heed.
As Capital Advisors Group has done with many alternative investment options in the past, “Demystifying Private Liquidity Funds” provides a clear and thorough analysis of the pros and cons of private fund alternatives. Our report recognizes their merit for certain sophisticated investors in special circumstances. But we caution against plunging in before fully understanding their legal complexity and liquidity risk profile. And, as always, we tell you why taking direct control of your cash investments instead with a separately managed account may be the easier, safer and more liquid alternative you have been looking for all along.