Introduction to Fixed-Term Funds

Nigel Owen

20 years: Debt capital markets

In this video, Nigel explores Fixed-Term Funds (FTFs), a game-changer in accessing short-dated fixed-income investments. He covers why FTFs emerged, how they work, and their benefits for investors and issuers.

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Introduction to Fixed-Term Funds

9 mins 37 secs

Key learning objectives:

Understand why Fixed Term Funds (FTFs) have emerged
Understand what Fixed Term Funds are (FTFs) and how they work
Understand the benefits of Fixed Term Funds (FTFs) for issuers and investors

Overview:

Historically, only large investors could access short-dated fixed-income investments, leaving others with low-yield bank accounts. The 1970s introduced money market funds, and in 2018, TreasurySpring launched the Fixed-Term Fund (FTF), a regulated platform offering assets like UK Government debt to a broader audience. By September 2023, the FTF market had grown to over $50 billion across more than 1,000 products. FTFs provide unique, individualised exposure to specific assets, reducing correlation risk. Today, a range of investors, from global corporations to startups, use FTFs for better returns, while issuers benefit from increased liquidity.

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Summary

Why have Fixed-Term Funds (FTFs) emerged?

Fixed-Term Funds (FTFs) emerged as a response to the historical trend where only large-scale investors could access short-dated fixed-income investments, leaving many others reliant on bank accounts with lower interest rates. Since the 1970s, the primary alternative for these investors was money market funds. However, in 2018, TreasurySpring introduced FTFs to provide broader access to valuable assets like UK Government debt, especially for those who previously found it challenging to tap into such investments.

What are Fixed-Term Funds (FTFs) and how do they work?

FTFs are a creation of TreasurySpring, serving as a platform-based product offering that provides exposure to assets such as UK Government debt, corporate debt and bank debt to name a few. An FTF is an individual financial instrument that provides access to a variety of short-dated fixed-income investments, previously limited to major institutions. Each FTF provides investors with a clean pass-through exposure to a chosen underlying asset for a fixed term. This structure ensures each FTF offers exposure solely to a specific underlying investment, reducing correlation risks and complexities typically associated with larger funds.

What are the benefits of Fixed-Term Funds (FTFs) for issuers and investors?

For investors, FTFs offer access to diversified asset classes and minimise correlated risks. Unlike traditional funds, each FTF is directly linked to a particular investment, enhancing clarity and risk management. Investors can also bypass the credit risk linked to FTF platforms, and TreasurySpring's online platform simplifies the process of comparing and selecting FTFs.

For issuers, FTFs open up new liquidity avenues. Borrowers, ranging from governments to corporations, can access funds from a broader pool of investors. This increased funding source can potentially provide more competitive rates, benefiting both parties.

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Nigel Owen

Nigel spent nearly 20 years in debt capital markets. During this time, he worked for The Royal Bank of Scotland, Royal Bank of Canada, and National Australia Bank. Nigel has moved across various teams including treasury, private placement, origination, and syndicate. He currently works for the National Australia Bank to run the new issuance desk in Europe.

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