Prime reasons for money markets
They provide short-term funding that oils the economy's gears.
For more than 40 years, the cash management sector has been a pillar of the American financial system. Be it money market funds, investment pools or other structures, it has offered liquidity, stability and convenience for millions of investors both small and large. Throughout the pandemic-induced volatility this year, these vehicles have aided businesses, banks and governments on every level. In the best and worst of times, liquidity products have provided much of the short-term funding that lubricate the gears of the American economy.
It’s no coincidence that Federated Hermes also can count more than 40 years in the cash management industry. We have been a pioneer here and want to be clear that we remain committed to it—particularly prime. We have no intention of diminishing our dedication to this space. In fact, we are as enthusiastic about the broad prime markets as we ever have been as a firm.
Prime funds and like vehicles help corporations be nimble during volatile times by purchasing commercial paper that aids their cash flow and productivity. They offer investors a solid regulatory framework, daily liquidity, diligent credit analysis, broad diversification and historically higher yields than many competing products. Prime funds spread out risk by investing in different securities across business types, asset classes and geography. Lastly, when the Federal Reserve slashes rates, every penny counts. Any potential yield advantage provided by prime could add up to needed returns for investors of all stripes—from individuals to nonprofits to municipalities to corporations. The acknowledgment of this can be seen in the substantial industry inflows to the space after March.
As the U.S. economy recovers in a post-coronavirus world, when neighborhood restaurants fully open, people travel again, live entertainment and “un-bubbled” sporting events flourish, and the labor market strengthens, the nearly $5 trillion money fund industry will be there.