Fitch Ratings put out a press release entitled, "U.S. Corporate Cash Investments Signal Ongoing Risk Aversion yesterday, saying, "U.S. corporations continue to invest excess cash into shorter-term and lower-risk instruments, according to a new report by Fitch Ratings. This trend signals that risk aversion continues to be used as a buffer against market uncertainties in the longer term. Holdings of cash and other liquid assets at U.S. industrial corporations rose to $1.7 trillion in March 2012, according to the revised statistics provided by the Federal Reserve, though this figure might have been even higher absent a change to the Fed's process for calculating these levels. By the end of the second quarter, cash and liquid assets held by nonfinancial companies reached approximately 11% of U.S. GDP."
The release continues, "Fitch examined consolidated financial statements filed in Q1 2012 for the top 10 U.S. corporations ranked by their cash and cash-equivalent positions. According to Fitch's analysis, the bulk of liquid corporate assets are invested in either cash and cash-equivalent securities, such as short-term bank deposits, money market funds, or conservative longer-term investments, such as U.S. Treasury and agency securities. Structured finance holdings, municipal debt, equity-based investments and non-U.S. corporate securities collectively accounted for barely 10% of total liquid corporate holdings, highlighting the relatively risk averse nature of corporate portfolio investments."
It adds, "Fitch expects corporations will continue to hold high levels of cash, certainly until there is some resolution of the European financial crisis and clearer evidence that the U.S. economy is stabilizing. Various U.S. companies currently hold higher buffers of cash and liquid assets to guard against another potential decrease in the availability of capital, and have exercised caution with regard to expanding or acquiring new operations, given the uncertain economic outlook."
In other news, IMMFA, the London-based Institutional Money Market Funds Association released a statement last week saying, "The recent decision by the ECB to lower the deposit rate from .25% to zero has resulted in a significant reduction in yields in the EUR money markets, presenting challenges for managers of IMMFA EUR money market funds. As an industry, we have experienced similar conditions in the US market towards the end of 2008 when USD rates fell to very low levels. Some US and European USD funds decided to limit subscriptions to their USD funds at that time. In late 2011 when yields on core Eurozone government were negative, some EUR money market funds decided to restrict subscriptions to protect investors."
The statement continues, "Limiting subscriptions in funds in such challenging yield environments is one means of protecting the interests of existing shareholders in the fund. It is a mechanism used if an individual fund's investment advisor and Board of Directors deem it to be necessary. Fund managers monitor the markets daily and make decisions based upon what is best for shareholders in light of prevailing market conditions. When managers have decided to restrict subscriptions, there is no restriction on redemptions; shareholders are permitted to redeem from MMFs as normal."
Finally, the comment adds, "IMMFA money market funds continue to be an important and popular tool for investors seeking a conservative option for cash investments. IMMFA funds total EUR 522BN (E, $ and L combined) in AUM as of 29 June 2012 and this is an increase of EUR 220BN or 73% since 30 June 2007 when the strains from the financial crisis first began to appear in global money markets. IMMFA managers have a strong track record of managing through the many challenging market environments since 2007 whilst at the same time implementing a series of positive changes including increased minimum liquidity levels, greater transparency for investors, and portfolio stress testing."
