Transparency, Transparency, Transparency

2 min read

If location, location, location are the buzz words of real estate, then transparency, transparency, transparency is the latest catchphrase in corporate cash investing. Having a transparent visual on investments can be as valuable as being able to read your own MRI, but if you don’t know how to interpret the risks from the data, then transparency has limited practical use.

The recent revisions to money market fund regulation require more fund transparency. The SEC mandates that all money market funds post monthly holdings and many fund families even provide daily postings of their positions. This industry-wide move toward transparency has helped calm the nerves of investors and has provided reassurance to companies seeking transparency within their pooled investments. However, true risk management rests in effectively interpreting relative risk from the available information. Have you ever laid two money market fund holdings lists side by side and been able to discern the relative risk of one over the other? Have you ever looked at March’s holdings report and determined whether the risk of the portfolio had increased or decreased versus February’s holdings report? No one is more aware of the challenges this exercise presents for corporate cash managers than our credit team. That is why we developed Fund IQ – to help answer those very important questions. Like a radiologist reading a MRI, the image is just our starting point. While we welcome the new transparency that funds are now providing. It’s the interpretation and not the image that helps the patient.

The new transparency of money fund holdings shows that money market funds own the vast majority of the half trillion plus dollars of Freddie and Fannie debt outstanding with maturities less than one year. The Obama administration recently delivered a report to Congress on plans to shrink the government’s broad support of the nation’s mortgage market titled, “Reforming America’s Housing Finance Market”, and we thought that in this month’s research spotlight, it would be fitting to help interpret the impact that these plans may have on Fannie and Freddie credit. Please read on as we look at the potential path for the housing GSEs and the potential impact of this recent proposal on corporate cash investors.

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Best Regards,

Ben Campbell
President & CEO

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