In this month's Money Fund Intelligence, we spoke with DB Advisors, the institutional asset arm of Deutsche Asset Management and manager of the $70 billion-plus DWS Money Market Funds. We interviewed Joe Benevento, Head of the Liquidity Management Investment Group, Americas, and Joe Sarbinowski, Managing Director and Global Head of Institutional Liquidity Distribution, and discussed the challenges of managing in today's market, the companies' money fund 'transparency' and FDIC insured product initiatives, and thoughts on the future of money market funds.
We first asked, "What is the biggest challenge in managing a money fund?" Benevento told us, "I think from the investment side, it's quickly adapting to change. This is the biggest challenge that we face every day, whether it's crisis times or not -- adapting to changes in the credit cycles and changes in credits, adapting to new regulatory change, etc. Customer sentiment is also very important, adapting to what customers' likes and dislikes are.... You'll see that whether it's a rising rate environment or a declining rate environment. Adapting to the custumer and their sentiment is extremely important."
Sarbinowski responded, "Clients certainly thirst for a greater amount of information than before. It used to be kind of just 'check the box,' send the prospectus. Now it's RFI-, RFP-type inquiries; it's much more in depth. We're in favor of this, though, because we think we show very well when we're able to talk through all of that. But it's meeting the ongoing thirst for knowledge about what's going on in the industry, which we try to satisfy through webcasts and meetings."
We also asked, "What about challenges running the portfolio, low yields and lack of spreads? Benevento said, "Definitely, it is a big challenge. You haven't even quite reached the expansion cycle, and we're at credit spreads that are pretty tight, pushing us back years.... I think overall anytime you get a change in regulatory recommendations or any kind of market change, issuers adapt and buyers adapt.... I say tightness of supply is probably something we're going to be dealing with for a while, whether it'll be just market supply or possible recommended change to 2a-7. Diversification is probably the next biggest challenge."
Regarding the market "beyond 2a-7", Sarbinowski told MFI, "We call ourselves Liquidity Management, so we've got essentially a few different products to satisfy the market. Certainly the tried-and-true and the one that we're best known for is the money market fund. We also have a separate account business, as well as our FDIC Insured Deposit. So there are products to meet different client needs. We have clients that may invest both in our money funds and also in our separate accounts for different types of cash, working capital vs. 'core'."
Finally, we asked, "Which of the SEC proposals would be the most onerous from a portfolio management perspective? Benevento responded, "The liquidity buckets are going to be difficult. I think it is going to be a challenge to diversify in that sector, and it will be a challenge to find the supply -- issuers willing to issue that short as the market heals. For us, that is what we see as the most difficult part." On the proposal banning illiquid securities, he says it's not really a concern. "I don't see that as being a major problem for us. But I think the liquidity buckets, and having the market all adjust to the liquidity buckets, is what we're concerned about."
