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Demand for money market funds to increase

Date: 12 Feb 2010

Investor interest in liquidity funds could return as government guarantees on deposits expire says HSBC. But such funds must put liquidity and safety ahead of yield.

Keywords (click to search): [Asset management] [money market funds] [HSBC] [Halbis] [Gordon Rodrigues] [Patrice Conxicoeur]

Pamela Tang

The expiration of government guarantees on deposits could bring more investor attention back to liquidity funds, say industry figures.

The reputation of such liquidity funds took a hit two years ago. Back in September 2008 the per-share valuation of the Reserve Primary Fund broke the buck shortly following the collapse of US investment bank Lehman Brothers.

The money market fund was forced to write off US$785 million of Lehman debt that it held, pushing its per-share price to US$0.97.

That was not supposed to happen. The premise of such money market funds was to buy into the safest instruments, make sure there was enough liquidity to meet redemption, and preserve clients’ money.

Such events have made corporate treasurers and institutional take a lot more notice of the importance of liquidity in their day-to-day business.

“Given what happened in the last two years, there is...

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