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Activity Picks Up for Active Cash Managers

The $600 million in new assets that Horizon Cash Management captured in the third quarter could be a sign of things to come for the Chicago company and other cash managers.

Pauline Modjeski, Horizon president, said institutional investors such as mutual funds, hedge funds, managed futures funds and family offices are looking more closely at alternatives to the passive investment vehicles that they have previously used following the demise of Reserve's Primary Fund on Sept. 15th.

Horizon, which had $2.5 billion of assets under management as of Sept. 30 and handles 70 cash accounts, does not commingle client monies; instead it creates unique, separately managed accounts.

Clients "like knowing their monies are custodially protected, and they appreciative that we offer daily transparency, rather than waiting for an end-of-month or end-of-quarter report," Modjeski said. "Our first and foremost ambition is preservation of capital," she added.

Rus Prince, president of Prince & Associates, an asset management consulting firm, said there will likely be more assets shifting to cash managers. Prime banks are not as secure as they used to be, Prince said.

Brian Hamburger, founder of MarketCounsel, said, "It is not surprising that cash managers would see an increase in assets under management during these turbulent times, and $600 million in cash is not the equivalent revenue of $600 million in equities."

Some of Horizon's recent asset growth has been organic from existing clients, but the company has also added clients that transferred their cash holdings from prime brokers or money market funds, Modjeski said.

Hedge funds and actively managed equity funds, in particular, are now feeling hampered by investing their cash in money market funds. They have rarely looked at cash as a serious portfolio, but now they must, she said. With continued market volatility, and funds of all types holding larger portions of their portfolios in cash, Modjeski said she expects the inflows to continue.

"The extraordinary volatility in the prime broker market has led many to examine the virtues of customized and individually managed cash accounts," Modjeski said.

Modjeski said Horizon traditionally invests in U.S. government Treasury and agency securities; commercial paper; reverse repurchase agreements; and other short-dated, money market-type securities.

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