The concept is simple: ReFlow pays funds a return on their cash matching the appreciation in their Net Asset Value (NAV).
Mutual funds use NAVswap when they want to:
- Create a liquidity cushion to cover future redemptions.
- Precisely manage cash positions and market exposure without incurring transaction costs or portfolio rebalancing overhead.
- Put platform allocations or other large inflows to work in a more strategic and cost-effective way.
NAVswap can be used on its own or complemented by ReFlow’s Redemption Service if funds want access to backstop liquidity beyond their own cash reserves.
How It Improves Performance
- Eliminates “cash drag” on fund portfolios, along with the related tracking error.
- Puts more assets to work, in effect allowing funds to be “fully invested.”
- Avoids dilution or distortion of investment strategies.
- Gives portfolio managers time to find the right opportunities at the
right price. - Allows funds to maintain a precisely targeted cash balance.
- Provides a cash reserve that funds can draw upon to cover redemptions as needed.
How It Works
- Client pays ReFlow the current return on cash (LIBOR) plus a transaction fee based on asset class; there is no set-up fee.
- ReFlow pays client the change in fund NAV, adjusted for management fees.
- The service can trigger automatically to maintain a predetermined cash balance or be set daily.
- No mutual fund board approval is needed.
- NAVswap is not difficult to set up and requires no operational changes once it is in place.
Advantages
NAVswap is a better way of accomplishing what some managers do by equitizing cash with futures, in that it:
- Precisely mirrors the fund’s investment strategy, locking in that return.
- Eliminates tracking error rather than merely reducing it.
- Is always available, and can be turned on or off at will.
- Is far simpler to execute once it is set up.
