T&R: Money Fund Madness in March
The website Treasury & Risk features a piece written by ICD's Justin Brimfield entitled, "Money Fund Madness in March." It explains, "Although markets have now returned to a relatively normal state, movement in money funds bordered on irrational in March of this year. As the impacts of the Covid-19 pandemic began to sink in, volatility reached the highest levels in decades and markets went 'risk off.' Corporate treasurers drew down credit lines and poured cash into the seemingly safest alternatives -- government and Treasury money-market funds (MMFs). The ICD analysis reveals that MMFs, as an asset class, performed flawlessly. They provided corporate investors with daily liquidity at net asset value (NAV), even as those investors' emotions led them to de-risk. Even prime funds, which directly reflect stress in the credit market, maintained market NAVs of $0.99914 at their lowest, only a $0.00086 deviation." The piece quotes Crane Data's Peter Crane, "These funds didn't come close to breaking the buck, and no one triggered gates or fees.... Never was a corporate in jeopardy of failing to get their money back on the same day. Most funds were far more liquid than required. That's a victory for prime and for money funds as a whole." T&R comments, "Another indication of the performance of MMFs as an asset class is its ability to absorb vast amounts of cash. Through the five-week analysis period, the market took in $782 billion in new assets." It also quotes Crane, "I think the reason why prime funds held up so well is because government funds held up so well, and that took the pressure off of prime.... Because investors were bucketing their funds, they didn't have to hit their liquidity so hard and so fast in the prime space. They knew they had government assets, and they were raising more assets. Money was flowing in.... I think it was a confluence of events that caused people to doubt the future and sell off everything in the stock and bond markets.... That happened, and then the same thing happened as in 2008, when even safe investments were scrutinized.... Having diversity between funds and being able to move between them -- regardless of which bucket springs a leak -- is always a good idea." Finally, the article tells us, "For now, the market has stabilized on all fronts. The government has shown its willingness to support money-market funds from a fiscal and monetary policy perspective, and professionals have settled from March's market chaos and the move from office to home. Corporate investment managers are currently finding balance at work, at home, and in their portfolios. The next time chaos engulfs the financial markets, treasury teams would do well to remember the solid performance of money-market funds during the global financial crisis and the current pandemic. Historically, a balanced portfolio has been shown to optimize liquidity, safety, and returns."
