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Corporates, Munis, and Other Products
Quantifying Liquidity Premium of Money Market Funds in the Low Yield Environment, Part II Print E-mail
Written by Capital Advisors Group   
Monday, 02 August 2010 10:59

This paper attempts to quantify the impact of a liquidity premium in money market funds by modeling three hypothetical portfolios of 29, 60, and 121-day weighted average maturities (WAM). Through our modeling process, we found the WAM extensions would have resulted in 0.11% and 0.31%, respectively, of additional annual yield potential over the 29-day WAM portfolio. The premise of the exercise is that by using separately managed accounts of custom maturities, investors may be able to recuperate part of the reduced yield caused by the more stringent liquidity requirements of the revised 2a-7 rule.

 
Prudent Risk Diversification: Challenges to and Solutions for Short-Duration Investors Print E-mail
Written by Capital Advisors Group   
Monday, 12 July 2010 08:48

Lance Pan, CFA

A common misconception of risk diversification may be that additional credits automatically result in a safer portfolio. Today however, one of the primary challenges in developing a successful diversification strategy for short duration investors is a smaller pool of eligible investments. A mad dash into European financial debt, certain sovereign debt, municipal debt, and bank deposits by money funds and other investors provides evidence that some diversification strategies may actually increase, rather than decrease, risk.

 
Fund IQ--New Research Sheds Light on Money Fund Risk Factors Print E-mail
Written by Capital Advisors Group   
Tuesday, 04 May 2010 06:47

Money fund due diligence is among several topics du jour with corporate investors. Prior to the Reserve Primary Fund “breaking the buck” in September 2008, loss of principal and liquidity in a money market fund was barely a concern for most corporate cash investors. Much has occurred in the fund industry since then, and the investing public should no longer count on the government to be the knight in shining armor. We believe, it is now crucial that investors have due diligence methods to critically evaluate the risks of money fund investing.

 
European Financial Debt and US Prime Money Market Funds Print E-mail
Written by Capital Advisors Group   
Tuesday, 01 June 2010 07:58

Credit concerns have once again taken center stage as the treasury community closely monitors its cash investments. These fresh concerns are relevant to U.S. cash and short-duration investors because prime money market funds are major investors in European financial debt. Approximately two-thirds of commercial paper and one half of jumbo bank deposits available to U.S. investors are obligations of non-U.S. financial institutions. We estimate that 44% of a typical U.S. prime fund is exposed to non-U.S. financial debt. For large prime funds, 69% of assets are estimated to be non-U.S financial debt, of which 55% is European, 16% eurozone, and 4.6% southern European. No direct exposure to Greece or Portugal was found but the significant dispersion of exposure among large prime funds should continue to be a reminder of the importance of credit monitoring in prime funds.

 
The New Normal in the Cash Management Landscape Print E-mail
Written by Capital Advisors Group   
Monday, 01 March 2010 15:07

As we enter the second decade of the new century, the world financial system has just emerged from a near death experience and embarked on a new journey of redefining itself. Having witnessed the subprime meltdown, the bankruptcy of Lehman Brothers, and the collapse of the Reserve Primary money market fund, corporate cash investment professionals are faced with the same task of redefining their investment choices, strategies and expectations. This paper attempts to point out several recent developments that will likely shape the new cash investment landscape for years to come.

Last Updated on Monday, 01 March 2010 15:12
 
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