Tuesday 19 December 2017

The US liquidity landscape following Money Market Mutual Fund reform continues to provide many alternatives to optimize short-term cash.


If the financial crisis has taught us anything, it has shown that regulators have the ability to make structural changes to products that corporate treasurers frequently use to manage liquidity. From Dodd-Frank to Basel III, meaningful changes have been made to the financial sector in an effort to mitigate any perceived risk. Money Market Mutual Fund Reform, which was officially enacted in October 2016, is another significant regulatory change affecting how treasurers manage liquidity. With meaningful changes to this traditional bulwark of short-term liquidity including a floating Net Asset Value (NAV) and redemption fees and gates, more than half a trillion dollars left Institutional Prime Money Market Mutual Funds (Prime Funds) just prior to the official date of the change.  

"The Regulatory change in money funds has many corporate treasurers seeking alternatives that produce increased yield with cash accessible until later in the day"
Liquidity management is a multivariate equation requiring a myriad of considerations such as principal preservation, yield, risk mitigation, cash forecasting, human and capital resource management, etc. Any one of these variables can alter how cash is deployed to respective products and providers, with each having significant importance. The Regulatory change in money funds has many corporate treasurers seeking alternatives that produce increased yield with cash accessible until later in the day. As corporate treasurers continue to navigate through managing cash and life after money market mutual fund reform, it is important to realize that there are key alternatives to Government Funds that can be part of any liquidity management solution.


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