The following piece excerpts from the September issue of Money Fund Intelligence.... One of the sessions at our recent Crane's Money Fund Symposium was entitled "Money Fund Investors & Due Diligence." Part of this presentation was given by The Mosaic Company's Senior Cash Management Analyst Michael Crawford, who discussed one company's thinking and processes behind choosing money funds and cash investments.
Crawford told MFS, "As all of us are aware, the corporate investing landscape has changed dramatically in the last two years. This is especially true when we look at the short term liquidity market. Traditionally, money market funds were key instruments in managing short term cash availability. This changed when The Reserve Fund broke the 'buck'.... The ensuing liquidity crisis money funds experienced (as investors sought to convert these holdings) forced other fund closures. Could anything have been done to prevent this?"
He continued, "Due diligence is key for all of us. Ultimately, institutional investors must determine what they will invest in for the benefit and cash management of their corporations. This means truly understanding what comprises the assets that are actually under management and monitoring the changes in those assets."
Crawford explained, "Partnering with money market portals can supply critical daily information to aid in monitoring. Using the information provided in an efficient, downloadable form is one key to ongoing due diligence.... The most obvious and most critical tool is having transparency to the portfolio underlying the AUM. Since the market and portfolio managers are constantly reacting to the market, this is impossible in a real time environment. However, there are ways to trend past money funds holdings."
Crawford told the Symposium audience, "Concentration monitoring of holdings is another due diligence weapon in trending across multiple money market funds. This trending can add an extra level of knowledge in determining your partner money market funds. Complementing [this] with appropriate industry intelligence [should] round out the due diligence process. I'm not talking about James Bond or the CIA, but identifying key news and industry sources for regular review and information. It is my opinion that all of these points listed are paramount to an effective due diligence process as an institutional investor."
Finally, Crawford said, "These points provide the basis for solid due diligence and a key part of an overall process. As an investor, I want to express with confidence to my senior management that we have a comprehensive process in place to review and quantify our investments." E-mail us at info@cranedata.us to request a copy of the full article.
