Six Advantages of Separately Managed Accounts Over Ultra-short Bond Funds

1 min read

Abstract

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:

  1. Tailored Risk Management
  2. Reduced Shared Liquidity Risk*
  3. Transparency
  4. Low Portfolio Turnover and Simple Tax Considerations
  5. Income and Capital Gains Management
  6. Versatile Reporting

Introduction

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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Lance Pan joined Capital Advisors Group in 2003. As Director of Investment Research and Strategy, Lance assesses the risk and relative value of asset classes and credits, creates advanced credit approval and surveillance procedures, issues credit opinions, and provides investment strategy recommendations. Lance oversees Capital Advisors Group’s Credit Committee.

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