Credit rating downgrades have placed more pressure on treasurers to diversify their investments and spread counterparty risk. Liquidity funds can satisfy many requirements – providing security, liquidity and the potential to enhance yields. A number of factors must be considered when selecting a liquidity fund provider such as credit quality, the size of the fund and the solution’s position along the yield curve. Enhanced yield funds diversify outside of traditional instruments and offer durations of 90 to 365 days, providing a home for cash balances with a 6-12 month horizon. Liquidity funds also offer a variety of services and options such as sameday settlement and late dealing deadlines. Other benefits include instant liquidity without penalty and automatic sweeping of uninvested cash. Some providers also offer online services.
