CFO Magazine on Money Funds
CFO Magazine writes, "Money Market Funds: Safe Keeping for Excess Cash?" The piece tells us, "Recent bank failures prompted outflows of U.S. bank deposits into systemically important banks, but money market funds -- less used by treasurers and CFOs the past few years -- also benefited. About $30.3 billion was poured into U.S. money-market funds (MMFs) in the week of April 12, according to data from the Investment Company Institute. Less risky government funds -- which invest in securities such as Treasury bills and government agency debt -- saw assets rise to $4.4 trillion, a $26.8 billion increase. The rest went to so-called 'prime funds,' which invest in higher-risk assets such as commercial paper." It states, "The surge in money market fund assets was partly due to the shutdown of Silicon Valley Bank (SVB) in early March by regulators. The SVB situation, which required the federal government to guarantee all customer deposits, alerted businesses to the risk of having large amounts of cash in accounts that exceeded the $250,000-per-customer FDIC insurance limit." They quote Lance Pan of Capital Advisors Group, "For businesses with large, unpredictable daily cash flows, keeping a large balance is an unavoidable and accepted risk. Many institutions, however, choose to leave large sums of uninvested cash in their operating accounts as a habit of convenience and unwittingly expose their organizations to an unnecessary source of credit risk." The piece adds, "Part of the reason money is flowing into MMFs now -- not just from some businesses but also institutional investors -- is due to higher returns than bank deposits.... To decide whether to invest in MMFs, businesses need to 'understand their level of risk versus return on cash as well as their liquidity needs,' according to Paul M. Galloway, a senior director of advisory services at Strategic Treasurer, a corporate treasury consulting firm."
