It has been a highlight of Australia Ratings’ research to date to see how seriously managers in the cash-plus space have been taking clients’ needs for capital stability and liquidity.In doing so they are providing a real alternative to the traditional term deposit market.
It’s now been over two and a half years since APRA brought in the transition to the Basel III driven LCR (Liquidity Coverage Ratio).The banks’ immediate response, and those of other authorised deposit-taking institutions (ADIs), was to impose a 31 day break notice requirement on term deposits - immediately bringing an end to the relative ease with which term deposits could be pre-paid and eroding the high liquidity.
Investors have also become increasingly aware that a perceived advantage of term deposits over cash funds – the Financial Claims Scheme (aka the deposit guarantee) applies to the “entities” which are the account holder.This means that entities like public superannuation funds, master trusts or even wrap accounts, which may have very large exposures to any given ADI, might only receive a single payment of $250,000 maximum in the event an ADI fails.
Since August 2016, the RBA Cash rate has been stable at 1.5%, driving high demand for cash-plus investment solutions.
Below are performance results to June 2018 of cash-plus funds as reviewed by Australia Ratings.