How I Invest with David Weisburd
00:08:49 · Christopher Donahue
[00:08:49] S1: the tip? The answer to that. Last part would be, yeah, we probably are, but that isn't the point. Back in the seventies, when interest rates went below passbook rates, we found out that we could really do well selling money market funds to bank trust departments because it was a cash management service. So even though the yield was below passbook rates, you could get a half a point more somewhere, we found tremendous interest in it. And so when others in the industry went retail, we went institutional. And did we leave money on the table? Would it have been better to have gone retail? Who knows? We were a little company and federated trying to survive, And we felt that was the best thing to do at that time. So, we've now used it as a strength because when big customers look at money fund providers, they go, Well, wait a second. I've got to divide my money into at least three of them. They want diversification too. And each one of them goes down. Or they have a problem with them, but they want to diversify again. Remember, they want their cash back. So they get all three of them, and they say, oh, wait. Look at Federated. Look at those guys. They're not gonna take my client. So they'll be one of the ones that that we put in there. The other people, you know, they're after the client, directly. But we are... Go through intermediaries and are very happy with where we are right now.
00:10:20 · David Weisburd
[00:10:20] S0: You mentioned you have $400,000,000,000 in cash. It's still blowing my mind. But give me a sense for your customer base. Are these large banks? Are these large nonprofits? Who who are the types of customers?
00:10:34 · Christopher Donahue
[00:10:34] S1: The 400 was the 400 of 700 that's in Govies. So the other 300, we still have 700 total. And in terms of the customers, they are retail customers who come through basically broker dealers. And these are the individuals who are managing their life. And they have regular needs, tuitions, vacations, all the things that are going on. And they're running a big portfolio, and it's a lot of the things, like I said at the beginning, where they don't want to be forced to sell, and they want to be able to take care of opportunities and flexibility. So, there's a big retail component. And when there's a retail component, those guys like higher yields. Anything with a four handle is great. Three is good. Five is nirvana. If it's a five point something, that's nirvana. And so, rates are now going to be higher for longer. Retail customers, this is going to be fine. A lot of them are perfectly sanguine with a larger portion of their money and money funds, even though the market may go up and up because they go 4.5%, 4%. Maybe I don't want to make a decision. So that's retail. Then you've got the bank trust I've talked a lot about. That's a service they offer to their customers. And we like to say, as I discovered calling on them, that 20% of their money is in cash all the time anyway. And that's just because of the lifeblood of their customers doing the same kinds of things. They're doing estate planning, tax relief. They're doing all these things. And no matter what happens, they end up with 20% cash even though the market's exploding. The institutions, depending on what kind they are, endowments, they've got to look at what their uses of cash are. The pension plans are governing that way. The corporations have a pretty sharp CFO or treasurer who has a platform now who looks at all of the funds, where he has all his money, how he's doing on the yield, and where he wants to go, and whether he wants to go out the yield curve, because maybe he can do an ultra short fund or a different type of fund going out the yield curve a little bit because he's gonna have the money a little longer. So that's pretty much an array of the customer base.
00:12:49 · David Weisburd, Christopher Donahue
[00:12:49] S0: And let's just take corporation. You mentioned a lot of the is required on a daily basis, and let's say it's a corporation. What's a small portfolio in terms of thirty year treasuries, money markets, and how should investors think about how to build a portfolio around their cash? [00:13:07] S1: Well, if it's a corporation, the odds of them owning a thirty year bond are almost nonexistent. What what the corporation in that example is thinking about is what is the CFO... What is the strategy? What is our cost of capital? Are we doing acquisitions? Are we building plants? All of the regular needs of a corporation are baked in there. It's completely different than what, say, an institution, a pension plan, or retail investor would do or a charity of some kind. Each one of those has individual cash needs. What we preach is, at BASE, you have to decide what's a proper amount of cash, so you stay safe on base. You don't want to be hanging 10, and then you are forced to sell, forced to do something you don't want to do, miss out, all the things I've said before. And all of those people have a different array of answers for that. And a lot of them will balance the short term cash, really short term cash, with a longer term cash, maybe up to two years, and go back and forth between those kinds of products. But they're all looking at it the same way. I want my cash when I need it. What do I need it for? And I really want daily liquidity at par on that part of it.
00:14:38 · David Weisburd, Christopher Donahue
[00:14:38] S0: So then retail or institutional investors, they have a portfolio. So in general, only call it 5% of their funds. Maybe if it's a retail investor, maybe 10%. They want super liquid so that they can make some purchases, but endowments they need to have to pay for their yearly yearly expenses. But on corporations, the cash is kind of like the leftover thing. The cash is what they need on a daily basis. [00:15:04] S1: Well, sometimes it's not leftover. Sometimes that treasurer is told, I want X percent of something, or I want X number of dollars in cash available all the time. If I want to do an acquisition, I've got to have cash available. Now, maybe cash should be available through a loan or through revolving credits, and that counts. But almost all treasurers are going to have several months of payroll in the bank and not be a living hand to mouth. And so it isn't what's left over. To me, it would be the reverse. It's what's first. [00:15:42] S0: There's almost like these two buckets. There's these money spend that you're gonna have to spend over the next couple months, and then there's, like, these cash positions. We've all heard of Apple or Google or name your tech company having just enormous amounts of cash, hundreds of billions of dollars. Now you can't talk about specific clients, but if you were one of those tech companies, what do those positions look like when you double click? Is it all just in one day treasuries? [00:16:14] S1: No. It it would be out the array, and some of those companies have money in our money market. Yeah.
00:16:14 · Christopher Donahue, David Weisburd
[00:16:14] S1: No. It it would be out the array, and some of those companies have money in our money market. Yeah. [00:16:20] S0: So without without mentioning companies No. I don't mention them. But Maybe talk about what what those look like. What do those portfolios [00:16:26] S1: I don't know what their whole balance sheet looks like, but, you know, they trade in billions, and these are big numbers. And they've gotta be in a fund that can handle that. And if we can use an example, I can talk about FHI, Federated Hermes. And because we're owner operators, and because we have no net debt, we have a lot of financial flexibility to borrow. Okay? And if we have excess cash, we tend to pay special dividends, do acquisitions, and buy stock back. And then we're always debating which which of those are the best for the long term interests of the enterprise and the shareholders. Those guys are all doing the same thing. As you know, they're spending more money than Godot on building on their CapEx expanded data centers. And yeah, getting the compute. We got to get the compute. So fine, get the compute. That's what they're doing. It's really hard for me to say what their balance sheet should look like or how they want to structure But [00:17:35] S0: in their cash position that they have with you, is it all one instrument? [00:17:39] S1: No, they would be in one or two funds, different funds. And some of them are okay with going into a prime fund. Others are in the gov funds. Some really want a conservative and are in the treasury fund.