Know Your Options
Along with the scorching weather, July brought the hotly debated and long-anticipated proposal for money market fund reform to the hands of the SEC Commissioners for review and a possible vote. Additional regulatory uncertainty is scheduled for the end of 2012, when the FDIC´s unlimited coverage on transactional accounts is expected to expire.
With two major investment channels facing potential changes, Treasurers should step back and analyze all of the investment options available for their cash portfolios. These options range from bank deposit products to asset pools, such as money market funds and ETFs, as well as direct purchases of securities – either individually or through the use of separate accounts. While each option has its own advantages and disadvantages, there is no right answer as to which investment channel makes the most sense. The best answer lies in the correct investment mix that matches internal resources and risk parameters. If money market funds are your investment of choice due to professional credit oversight and limited internal resources, shifting to a separately managed account strategy may be the best option should new regulations change the utility of money market funds. This shift could be particularly productive for those in Treasury and/or government money market funds, where the potential to increase yield and decrease the cost of the overall program may be possible. If one has managed a portfolio through deposit products such as transactional DDAs paired with earned credits, the diversification of individual securities either directly or through a separate account may provide the control to selectively offset existing bank exposure with industrial or government credits.
The results from our Capital Advisors Group/Strategic Treasurer 2012 Liquidity Risk Survey show Treasurers are open to other investment channels if and when regulations unfold in their existing channels. This month, as Treasurers await the outcome of the various regulatory changes, we thought we would take a step back and assess all of the investment options available to Treasurers in an effort to clarify the advantages and disadvantages of the various investment channels.
Best Regards,
Ben Campbell
President & CEO
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