The New Generation of Cash Management
An Interview with Jason Singer, Managing Director, Head of International Cash Portfolio Management, Goldman Sachs Asset Management
AAA-rated money market funds (MMFs) including government funds, have typically been seen as the safe haven that many investors have come to rely on during the turbulence of recent times. But with market confidence starting to return, albeit tentatively at this stage, how are treasurers likely to develop their cash investment strategy? In this interview, we are delighted to talk to Jason Singer of Goldman Sachs Asset Management (GSAM) on the changes that he is witnessing amongst corporate investors.
Corporate investors have been increasingly attracted to AAA-rated MMFs, particularly government funds, over the past year, during a period of heightened concern over counterparty and liquidity risk. Consequently, security and liquidity have been considered paramount, with little if any focus on yield. Do you see any signs that corporate investment behaviour is changing and to what would you attribute this?
Absolutely, the past year or so has seen a so called ’flight to quality’ with assets under management in MMFs almost doubling. We have also seen the emergence of government and treasury MMFs, a new category of funds within the money market group. These funds invest exclusively in government and treasury debt and have been very popular with European and Asian investors. As markets stabilised and confidence started to return in the second quarter of this year, AAA-rated MMFs continued to generate phenomenal interest, but some investors also started to seek higher yields than those provided by government funds in particular. As a consequence, there has been a modest 10% fall in assets held in government funds while funds including instruments such as commercial paper have started to grow.
The opportunities for higher yield are still modest given the low interest-rate environment. Security and access to cash remain vital investment criteria for most, but an increase of a few basis points’ yield has some value which investors are increasingly seeking to leverage.
However, the big and we think long-term change to investment behaviour lies in the way people view cash. Increasingly, cash is seen as an asset class in its own right. This means that corporate investors are taking a much more active approach to money market funds – and a much more active and thorough approach to evaluating managers.
What investment opportunities do corporate treasurers have to increase yield without unduly compromising security and liquidity?
There are inevitably compromises to be made if the balance between these three cornerstones of investment policy is shifted. Until recently, security and liquidity have seemingly entirely eclipsed yield in priority, and companies have been able to enjoy same-day liquidity and capital preservation. If these considerations remain the primary emphasis, then investing in AAA-rated MMFs, including government funds, will remain a priority. However, some companies are able to make compromises in terms of access to liquidity. In these cases, they may decide to pursue a Libor-generative approach as part of their overall cash management strategy.
What should a treasurer understand by Libor generation, and what type of instruments would be included?
Essentially a Libor generation strategy is one that seeks to increase the returns on cash by investing in a wider range of instruments than AAA-rated MMFs. For example, we see triparty reverse repurchase agreements (repos) as being a valuable investment instrument. These can be pooled within a fund, or used for investment individually. Either way, we believe repos present a low-risk strategy which should be attractive to treasurers.