The four major banks, as well as the super funds-owned ME Bank and fund manager Goldman Sachs JBWere’s cash trust, have been appointed to the initial panel of the investment efficiency management firm IE Group.
The inclusion of ME Bank and the Goldman Sachs JBWere Cash Reserves Fund alongside the major trading banks would give super funds a wider choice of returns if they wanted to take slightly more risk, according to Patrick Liddy, IE Group’s founder and chief executive.
IE Group, which provides diagnostics and management on super funds’ cash and foreign exchange holdings, aims to take advantage of the current high cost of funding for the banks by getting significantly better rates for the operational and other cash held by super funds.
Liddy said that super funds were giving up, on average, more than 100bps a year by not managing their cash, and cashflow, as aggressively as they could. With FX, the leakage through funds managers and custodians was probably greater, he said.
Custodians typically paid their super fund clients between 100-200bps below the official cash rate (currently 4.50 per cent) for “operational cash” deposits, even though the banks were prepared to pay more, Liddy said.
“And in the current environment, where liquidity is still tight, or perhaps even getting a bit tighter, funds should be getting a lot more for their cash,” he said.
Under the IE Group system, the funds have their various cash accounts swept each morning and then divided up among the panel banks according to their rates on the day.
Liddy said that the addition of ME Bank to the panel, as well as the cash trust, gave funds the option of getting greater diversification in their counter-party risks, as well as the possibility of even higher returns, depending on market conditions.
ME Bank (formerly known as Members Equity) is owned by 35 super funds. It was initially established in the 1990s to allow funds to offer home loans to members but has subsequently expanded into a range of retail and business banking products.
The Goldman Sachs JBWere Cash Reserves Fund on IE Group’s panel is AAA rated by Standard and Poor’s.
Liddy said that he expected that the firm’s initial panel would continue to be expanded, probably with the addition of top-tier offshore banks to complement the core of the four pillars.