Maintaining Liquidity in Corporate Cash Accounts

Two years ago, the SEC was still deliberating on rules for prime money market funds that eventually resulted in floating net asset values (NAVs), liquidity fees and redemption gates. Basel III reforms affecting bank deposits were still only in the early stages of implementation. But we were already warning clients that the future might require new vehicles for managing liquidity, beyond the mainstays of bank deposits and money funds. For many, our March 2014 white paper on “Maintaining Liquidity in Corporate Cash Accounts” was the first clear explanation of just such an alternative. By showing how separately managed accounts of directly purchased short-term securities might be managed to meet their liquidity needs, it presented a solution that many corporate cash managers were only starting to realize they might need.

Today the future we envisioned is here. Major banks have started limiting corporate cash deposits to comply with Basel III liquidity coverage ratios, and prime money funds are getting ready for the October 2016 transition to floating NAVs. So it’s appropriate that this month’s research reprises our prescient analysis from two years ago. Our recently updated “Maintaining Liquidity” white paper demonstrates how it’s possible to design a portfolio of short-term investments optimized for liquidity, safety and yield. With a carefully planned maturity structure and organized strata of liquid investment vehicles, a separate account may be structured to offer not only a high degree of liquidity, but also the potential for better credit quality and higher returns than bank deposits or the new floating-NAV prime funds might deliver. If, like me, you believe now is the time to consider separate accounts for cash management, this month’s white paper is must-reading.

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Best Regards,

Ben Campbell
President & CEO