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Goldman injects US$1b into own money-market funds

Move follows heavy withdrawals by investors to boost liquidity at a time of coronavirus-related stress

Washington

GOLDMAN Sachs Group Inc poured more than US$1 billion into two of its prime money-market portfolios this week due to heavy investor withdrawals, in what the Wall Street bank described as a pre-emptive move to boost liquidity at a time of coronavirus-related stress.

Goldman purchased US$722.4 million in assets from its GS Financial Square Money Market Fund and US$301.2 million from its GS Fund Square Prime Obligations Fund, the bank disclosed on Friday in a US Securities and Exchange Commission filing.

Investors had withdrawn a net US$8.1 billion from the two funds, putting downward pressure on their liquidity levels, the funds disclosed on their websites.

Goldman bought securities from the funds at market value as a proactive move and not from any stressed position, Patrick Scanlan, a Goldman spokesman, said on Saturday. The transactions occurred on Thursday.

"These actions underscore our commitment to the GSAM funds providing liquidity to clients focused on the near-term implications of the current market environment," David Fishman, head of the liquidity solutions portfolio management team within Goldman Sachs Asset Management, said in an e-mailed statement.

SEC rules dictate that funds have to keep at least 30 per cent of their portfolios in securities that can be converted to cash in five business days so they can meet investor redemptions.

Goldman's Financial Square Money Market Fund's level of weekly liquidity had been 34 per cent before the purchases, and surged to 46 per cent by the end of Friday. Its Prime Obligation Fund's weekly liquidity rose from 44 per cent to 55 per cent.

Industrywide, investors pulled tens of billions of dollars from prime money-market funds, which buy top-rated corporate debt. Although they are among the tamest investment vehicles, they can be riskier than portfolios that rely more on US government bonds.

The US Federal Reserve rolled out three emergency credit programmes last week to battle a global economic shutdown that has roiled the US$3.8 trillion money-market mutual fund industry. The Fed is in effect encouraging banks to buy assets from those funds, insulating them from having to sell assets at a discount if they come under pressure from households or firms wanting to withdraw money.

Goldman's moves are unusual, but the bank does not stand alone in supporting its funds during the coronavirus crisis.

Bank of New York Mellon Corp also stepped in twice this week with a total of US$2.1 billion to prop up Dreyfus Cash Management.

That US$10.5 billion portfolio was also hit by heavy investor withdrawals. BNY bought US$1.2 billion from the prime money-market fund on Wednesday and then another US$949 million on Thursday, according to fund disclosures, part of which was first reported by the Financial Times.

If a prime fund's weekly liquidity level falls below 30 per cent, SEC rules give its board discretion to introduce redemption fees of up to 2 per cent to slow down investor withdrawals. They can also put up gates for up to 10 business days.

Those moves, however, would not be welcomed by investors.

That's why fund sponsors like Goldman and BNY Mellon can provide capital support so liquidity levels don't drop below the threshold. Other fund sponsors have stayed more heavily weighted in liquidity. REUTERS