Goldman money funds' liquidity buffer swells before US election

BOSTON: Two Goldman Sachs Group Inc money-market funds, whipsawed in March by billions of dollars of investor withdrawals, have steadily amassed a liquidity cushion much larger than rivals, as the $4.35 trillion industry braces for the outcome of the US presidential election and another global surge in coronavirus cases.

The funds' weekly liquidity - a barometer of how quickly investments can convert to cash in a week - rose to 85% of total assets this week. That is about double the level when Goldman Sachs in March injected nearly $2 billion of the bank's own capital into the funds to prevent them from falling below the regulatory weekly liquidity threshold of 30%.

"We actively manage liquidity in our funds as dictated by the market environment," Goldman said in an email statement.

Average weekly liquidity at about 111 US prime institutional money-market funds, like the Goldman funds, was 66% at the end of September, up from 54% in the year-ago period, a Reuters analysis of US regulatory filings show. Those 111 funds hold about $300 billion in assets, or 9% of the $4.35 trillion in money funds.

Although they are among the tamest investment vehicles, prime funds can be riskier than money-market portfolios that primarily hold US government bonds. The upside is they may offer more yield from holding short-term debt issued by an array of top-rated global banks, for example.

Despite regulatory efforts to make institutional prime money-market funds more resilient in times of stress, they remain vulnerable to massive withdrawals, especially by clients who need cash immediately to meet their own obligations. A U.S. official recently warned that decade-old reforms to the industry may not be enough to avert major outflows during a future crisis. Stocks have swung significantly in recent days and more volatility is expected in the wake of the US election.