Important regulatory changes to institutional prime money market funds are forcing institutional cash managers to look elsewhere. While ultra-short bond funds hold promises, they exhibit many of the same drawbacks of commingled vehicles. A well-researched and well-structured separately managed account may overcome these drawbacks while delivering comparable or better benefits.
Commingled vehicles and separate accounts need not be mutually exclusive. A stratified portfolio with government money market funds insured deposits SMAs and other alternative vehicles may gain popularity.
Six Advantages of Separately Managed Accounts:
- Tailored Risk Management
- Reduced Shared Liquidity Risk*
- Low Portfolio Turnover and Simple Tax Considerations
- Income and Capital Gains Management
- Versatile Reporting
The implementation of floating net asset values (NAVs) and redemption fees and gates on institutional prime money market funds represents a paradigm shift for most cash management professionals in liquidity vehicle selections. Over the one-year period ending October 31, 2016, institutional prime assets went from $1.02 trillion to a measly $122 billion, representing a loss of 92%1. While some service providers are hopeful that eventual wider yield spreads between prime and government funds will win back some former shareholders, a new battleground has opened among alternative vehicles such as structured insured deposits, private liquidity funds, ultra-short bond funds (USBFs), exchange traded funds (ETFs), and separately managed accounts (SMAs).
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