This month, Crane Data's flagship newsletter, Money Fund Intelligence, interviewed Sean P. Simko, Managing Director and Head of SEI Global Fixed Income Management (SGFIM) and Daisy Lac, Senior Portfolio Manager. SEI is the 24th largest manager of money funds with over $10.9 billion, but the company also manages a number of other "cash" accounts. Excerpts from our Q&A follow:
MFI: Tell us about SEI's cash products. Simko says, "SEI's cash management and money fund offerings include a subadvisory program in which we hire outside money managers and delegate the responsibility for security selection to them, and SGFIM's in-house capabilities. The subadvisory program, known as the SEI Daily Income Trust, offers a full range of solutions including prime money funds, municipal bonds, and a complete spectrum of duration products."
MFI: What's the biggest challenge managing cash today? Simko says, "Money market and short-term portfolio managers are not only balancing the changing investment landscape, they are doing so in an unprecedented low interest rate environment. The goal is to build a portfolio that is well diversified, very liquid, upholding to the highest credit standards while achieving a return on investment. Now add into the mix concerns around all the regulatory issues that are on the horizon, and the result is a very challenging environment."
He continues, "Events over the past few years clearly illustrated that there was a false sense of liquidity within the marketplace. Adapting the management process to adhere to this reality is a challenge. Market participants witnessed first-hand that even as market conditions showed signs of improving, the overall system remains weakened.... Striking a good working balance between liquidity, stalwart creditworthiness and an appropriate yield return on the cash is a formidable challenge that many managers tirelessly take on day in and day out."
MFI: What are you buying now? What aren't you buying? Simko answers, "Our goal is consistent results over the long term. In order to achieve consistent positive long term results, you need to be flexible and adapt to the current environment without compromising your disciplined approach. I feel we have stayed true to our process. The direct beneficiaries of this structure are our clients. Outside of government paper, we are focused primarily on industrials and credits with a strong and stable cash position. This approach is very challenging in the current environment. Global banks and financial institutions have historically been a primary component of money market and short term strategies. With all the disruptions in the financial sector, that universe is constantly shrinking."
"With that in mind, we turned our focus over the past year to Australian and Canadian names. We never held large positions within structured debt, whether it was in Asset Backed Commercial Paper (ABCP) or Asset Backed Securities (ABS). We stopped buying structured debt back in the spring of 2007. At this point in time we have no intention to traffic in this sector any time soon. We have also removed many European financial institutions from our portfolios. There are a few select names that we are buying, holding very small positions," he says.
MFI: How badly are ultra-low rates hurting managers and cash investors? Simko says, "The ultra low rate environment creates a very challenging market for investment managers. The battle between risk and reward becomes that much greater every day rates remain low. With yields near zero, investment managers need to find yield without compromising their investment philosophy. This is a challenge that does not seem likely to go away in the near term. Unfortunately, investors are the ones that are truly feeling the pain. Regardless of the investment vehicle used for saving, the near-zero rates are hindering the path to accumulating wealth."
