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​Private Liquidity Funds: Characteristics and Risk Indicators

Jan. 27, 2017

​Daniel Hiltgen


At the end of 2015, $534 billion in assets were held by private liquidity funds or managed in their parallel accounts that follow similar investment mandates as money market mutual funds (MMFs), but are unregistered. Limited information is publically available about these funds that are in AUM terms roughly a quarter of the size of institutional MMFs. This white paper characterizes these private liquidity funds using data from Form PF and compares them to MMFs. I find that while most liquidity funds and their parallel accounts did not formally commit themselves to rule 2a-7 risk limits, during the period studied the vast majority of them held portfolios that were consistent with these limits. Among those funds that did not adhere to these limits, I find some that offered higher yields for investors. However, I find no evidence that these increases in yields were related to exceeding these 2a-7 limitations but rather from the funds’ overall investment strategy. Finally, I find no evidence that 17 months after the adoption, but 10 months before the compliance date of the 2014 reforms investors had reallocated significant amounts of dollars from MMFs to private liquidity funds and their parallel accounts.


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