They will also aid investors seeking to diversify their short-term investments or reduce their exposure to runs and other short-term market risks.
Labelled RISCMTP-Notes, these notes are a Moody's-rated "(P)Aaa(sf)" and listed debt security combining the liquidity of high-quality bank deposits with the superior quality and managed returns of government money market funds.
RISCMTP-Notes represent a proportional interest in the assets backing the notes (i.e., US Treasury bills and notes and temporary assets such as government money market funds [GMMFs] and cash), and are redeemable annually at par. Over and above their stand-alone return, liquidity and utility attributes, the Notes are structured to avoid run and contagion risk and, as such, RISCMTP-Notes may lower the investor's exposure to hidden risks in the short-term investment market.
They may be redeemed at any other time for same-day value by transferring the investor's share of each asset in the portfolio (i.e., a "vertical slice") to a redemption account where, at the investor's option, they may either be delivered to the investor or sold for cash at market prices for the liquidated asset value ("LAV"). The issuer's and investor's right to redeem annually at par is noted in the (P)Aaa(sf) rating by Moody's, as set out in their RISCMTP-Note Pre-Sale Report.
RISCMTP-Notes are an effective complement to other holdings in that they support growing investor appetite for safe short-term investments in a manner that bolsters the overall market resilience, answering calls from regulators for scalable investment solutions that promote enhanced financial stability.
Derrell Hendrix, CEO of RISCfp, said: "RISCMTP-Notes are designed to serve as versatile investment and collateral instruments that are more liquid, capital-efficient and secure than short-term credit securities (e.g. commercial paper and CDs), bank deposits and prime money market funds. They also provide greater flexibility as a collateral vehicle than ETFs and government money market funds. While it is the latest in a long line of market innovations that RISCfp and its affiliates have developed, the potential scope of the MTP asset class goes well beyond anything we have ever attempted in our 27-year history."
The long-term potential for RISCMTP-Notes is to provide not just a flexible, liquid and high-quality collateral asset for supporting reinsurance capital and reserves, but an asset class that has a broader stabilising effect on the global financial markets.
Insurers and re-insurers, institutional investors, corporate treasurers and others regularly face the requirement to access liquidity and pledge collateral to meet their investment and financing needs. While market alternatives such as cash (e.g., bank deposits), US Treasuries, and investments in credit assets (e.g., short and medium-term bank and corporate securities) are available to meet the needs of these industry players, RISCMTP-Notes were created specifically to address challenges such as credit risk, liquidity risk, collateral eligibility, and operating costs, as well as an investor desire to obtain expert asset management expertise efficiently while minimizing systemic risk (e.g., avoiding "run-on-the-bank" risk).
The following are supporting RISCfp to deliver RISCMTP-Notes to financial markets:
- BNY Mellon, custodian roles including paying agent, trustee and custodian
- Merganser, investment manager of inaugural issue
- Centaur, a Waystone Company, operations support
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The issuer is solely responsible for the content of this announcement.
Background for editors:
RISCMTP-Notes have several advantages compared with traditional short-term investment alternatives.
- Money market funds: RISCMTP-Notes are transferable assets that employ the services of a professional manager of short-duration assets to produce a return comparable to that of a government money market fund (GMMF). RISCMTP-Notes use specially designed investment and portfolio guidelines to avoid losses and achieve all-in returns equal to or better than that of GMMFs but with less risk. As marketable redeemable fixed income securities, noteholders may exit at any time by selling their securities in the market or redeeming them for LAV, without any risk of gating or penalties, or at book value on each annual optional redemption date (i.e., with no loss).
- Self-managed short-term US Treasuries and Separately-Managed Accounts: Owning a self-managed short-duration portfolio of Treasuries is an alternative to RISCMTP-Notes but involves the need to set up and maintain an appropriate trading and risk management eco system, including front (trading and PM functions), middle and back-office personnel and systems, as well as risk management and compliance resources. Separately-Managed Accounts eliminate the management and eco-system costs, but require a fixed decision by the investment manager, which may be disadvantageous and difficult to replace if the IM's performance lags.
- Cash on deposit with banks: RISCMTP-Notes are predominantly US Government backed and structured to keep credit and banking system risk (i.e., run and contagion) to a minimum. With the Federal Deposit Insurance Corp. (FDIC) coverage of up to $250,000 in case a bank fails, RISCMTP-Notes also cater to investors with investment capital in excess of this amount to fully maximise their returns and in a more capital-efficient manner.
- Exchange traded funds (ETFs): RISCMTP-Notes are redeemable at any time under the noteholder optional redemption right for the noteholder's share of the underlying securities (i.e., an in-kind redemption) or their LAV (i.e. a cash redemption). They are also redeemable annually at book value (i.e., the equivalent of par) on each annual optional redemption date. They are like zero risk-weighted debt securities without all the market risk and capital charges associated with ETF shares.
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