- Contrary to their reputation, government money market funds1 are not all the same. These funds, which invest primarily in cash, government securities and/or repurchase agreements,2 can offer a range of risks and returns.
- The view that all government money market funds are essentially alike is unfounded, as government fund managers have considerable discretion. Even considering these funds' relatively strict investment policies, active management matters.
- As a recent example of the differences, during both the October 2015 debt ceiling and the Federal Reserve December 2015 interest rate hike, funds that may have seemed alike on the surface delivered different risk and return characteristics.
- We think the differences among funds have been obscured by the low interest rate environment, but these differences matter over time—and are likely to draw more notice amid the implementation of money market fund reform.
As a manager of government funds, Goldman Sachs Asset Management espouses three principles: (1) We believe active management is central to government money market fund investing; (2) A combination of buy-and-hold and valued-based trading strategies leads to what we view as an optimal risk/return balance; (3) We believe government money market fund management should include credit risk oversight.
