Asset managers are having a hard time persuading endowments, foundations, pension funds, and other large investors to stop sitting on their cash, according to the Financial Times.
Investors seem to be waiting out the uncertain economic environment, while money market funds and other cash accounts are delivering their best yields in more than a decade.
Money market funds are paying as much as 5 percent and that yield is still rising, according to research service Crane Data.
The cash resting in U.S. money market accounts now tops $3.5 trillion, the Investment Company Institute reported last week.
The funds are able to deliver their lofty yields because the Fed has raised interest rates with only one pause in the past 18 months. Money market funds typically invest in short-term government securities.
“That’s a tremendous amount of money on the sidelines,” T. Rowe Price CEO Rob Sharpe told the FT. “You’re getting yields on money market funds you haven’t had in 15 years. We’re probably experiencing the worst of it now. Investors are waiting for the [U.S. Federal Reserve] to get out of the way” by lowering interest rates so other investment venues can compete.
Sharpe’s firm saw investors withdraw a net $20 billion in this year’s second quarter. Inflows will not exceed outflows until 2025, the company expects.
Investors also have sucked $3 billion out of asset manager AllianceBernstein this year. Investors “are being paid to wait” for a clearer economic direction, CEO Saul Bernstein said to the FT.
“Fixed income is the next stop as investors decide to take a little more risk,” Goldman Sachs senior analyst Alex Blostein said in an FT interview. “We’re already seeing that.”
Early signs of a more positive economic outlook are drawing Franklin Templeton’s clients out of cash and into higher-yielding venues, CEO Jenny Johnson told the FT, but cash inflows to the company have not yet turned back positive.
“It may last for a while but it won’t last forever,” she said.
TREND FORECAST: Having been burned by stocks’ and bonds’ ups and downs over the past several months, major investors will not hurry to dump their cash back into those markets and instead stay with their safe money market funds that pay as much as 5 percent.
A recession could draw some funds back to investment-grade bonds but big players will hold tight to their cash until the economic picture clears. And since the Bigs are not playing the market, and as George Carlin has said, “It’s one big club, and you ain’t in it,” the “club” players know what is going on behind the scenes that may have them staying out of the markets.