According to a report by credit rating agency Standard & Poor’s, the volume of assets managed in European-domiciled cash funds rated by the agency rose by some 180 per cent to $26.69bn in the three years to end September 2005.
Assets under management in triple-A rated money market funds in Europe for Instititutional Money Market Funds Association members stood at $255bn at end-June 2005 (1999: <$1bn). Feri Fund Market Information said that €28.3bn was collected in Europe in the year to October 2005 (2004: €11bn) in all short-term enhanced cash funds.
Liquidity plus funds offer investors a higher yielding alternative to money market funds, yet with slightly higher risk and slightly less liquidity. Falling interest rates experienced until recently in Europe and the US have also contributed to the popularity of such funds over recent years. Private banks and corporates have shaped a “significant boom” into enhanced cash funds over the last two years, said Dominique Mousset, a European fixed-income product specialist at BNP Paribas Asset Management in Paris.
Andrew Farrell, a cash plus fund manager at Investec Asset Management, added: “To achieve [higher yields] we’ve taken a little more risk by investing in instruments like government bonds.”
With cash plus there is a benchmark of cash that seeks to achieve 110 per cent of that benchmark. “So if the seven-day fund returned 5 per cent…we’d look to hit 5.5 per cent after fees,” adds Mr Farrell.
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