Many corporate treasurers are keeping their cash in bank deposits, U.S. Treasuries and government money market funds as they assess the impact of ongoing reforms that are changing the risk and liquidity profiles of prime money funds. According to the 2016 Liquidity Risk Survey of 130 treasury professionals by Strategic Treasurer and Capital Advisors Group, most are ignoring emerging bank exposures and accepting the opportunity costs associated with low returns from what have traditionally been the safest havens for corporate cash.
At the same time, however, many are also reporting new flexibility in their cash investment policies and acknowledging new risks while accommodating greater latitude in investment choices to navigate the new, uncertain cash investment landscape.
Uncertainty Drives Cash to the Sidelines
Nearly half the survey respondents (45%) said they “don’t know yet” how their cash investment strategies may change when institutional prime money market funds abandon fixed $1-per-share pricing and adopt SEC-mandated floating net asset values (NAVs), liquidity gates and redemption fees this October. Prime funds for decades have been the easiest choice for cash managers seeking liquidity, safety, and yield, but the new restrictions on them have created uncertainty about their utility going forward.
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