Daily Fintech Conversations

Cash is piling up; Which places could it go?

#1

I was inspired (I admit more by the US upcoming elections rather than what Blackrock’s president, Rob Kapito said) to look again into THE UNADVISED ASSETS.
This led me to post on Daily Fintech Oh, the things you could do with the enormous Cash pile!

In the end, I suggested that the cash pile may be reduced and end up in:

  1. Blackrock ETFs or some such (with the help of Robo-advisors)
  2. Marketplace lending platforms (with the help of financial advisors and wealth managers)
  3. Real Estate liquid vehicles (with the help of REIT Fintechs)
  4. An innovation that replaces Money Market funds and the Repo market, as a large scale liquid alternative

I am opening up the conversation here because there are more possibilities and more insights on Who will grab the most? Lets figure out together the top three places, this cash may go to AND the one or two innovations that may come out of this excess.

#2

I will post in another comment my innovative idea for the use of cash. However, before that, some thoughts on the issues of cash pilling up. Cash flow and liquidity generation is fragmented and their allocation segmented. The fragmentation condition tends to favor their concentration into the hands of sectors of the economy with traditional trade and payment practices and illegal unreported activities. On the other hand, the condition of segmentation tends to favor the accumulation of cash and narrow liquidity instruments into the hands of large vs. small and medium size enterprises. Technology innovations that reduce fragmentation and enhance liquidity conversion and expansion that is transmitted with instruments such e-wallets, barter exchange, P2P payments, e-transfers, etc., tend to disrupt the adverse effects of accumulation of cash holdings and reduce incentives to engage physical cash. Technology innovations that reduce segmentation allow for greater substitution between cash and other means of credit and payment and this enhances liquidity velocity and reduce the adverse effects of cash concentration. Then financial technology is attracted by the opportunities of cash conditions!

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#3

Another idea for using this pile is to invest in venture capital of start up companies that have developed R&D assets and their product application assets that are securitilzed as diversified and differentiated “pools” of titles to back up the VC investments. In case of company default or inability to achieve target VC return, the underlying assets can be sold or leased to earn royalties to the investors. Obviously, these securities can be sold to third party investors at a discount or even pledged to the limited investors or the firms that invested this pile in the venture capital funds.

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#4

There is cash sitting around as Collateral.

Brexit will result in increasing the Cash pile towards Collateral in the UK; for all Euro clearing transactions.
Read about this issue here that directly affects the LSE:

Cash locked towards Collateral requirements also related to this conversation:

#5

I would argue that, with significant and noticeable changes in global weather patterns, routing resources to funding alternative energy and disaster relief will become more and more prominent.

The environment may currently be considered as a market externality, hence the low level of attention, but as things get worse, the sense of urgency may start to build.

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#6

I would put it in some well-chosen closed-end funds (CEF). These vehicles are not even well-known in the US, their home, but they trade like ETFs, and, since fund portfolio holdings don’t adjust for market purchases and sales of fund shares, the market price can offer an attractive discount to net asset value (NAV). Management fees are much higher than ETFs, but since yields are still very high post-fees - CEFs are current income vehicles - it’s not a huge issue. Picking the right CEF is important - some are over-leveraged and others are toxic near-Ponzi schemes - but some are very solid.

Example: Eaton Vance’s ETW, invested 50/50 in high quality US and developed economy non-US stocks, zero leverage, an option writing strategy to boost portfolio yield, and a distribution of 11% paid monthly. NAV holds up quite well looking at the last five years, indicating that you’re not just losing in capital what you get as distributions. Plus, it’s tax-advantaged: option income counts as return of capital in distributions, reducing the taxable component. This is one way I like to make cash work!

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