By Tim McLaughlin

BOSTON (Reuters) - Two Goldman Sachs Group Inc money-market funds, whipsawed in March by billions of dollars of investor withdrawals, have steadily amassed a liquidity cushion much larger than rivals, as the $4.35 trillion industry braces for the outcome of the U.S. presidential election and another global surge in coronavirus cases.

The funds’ weekly liquidity - a barometer of how quickly investments can convert to cash in a week - rose to 85% of total assets this week, according to disclosures https://www.gsam.com/content/gsam/us/en/advisors/fund-center/fund-finder/gs-financial-square-prime-obligations-fund.html#activeTab=holdings by the bank. That is about double the level when Goldman Sachs in March injected nearly $2 billion of the bank’s own capital into the funds to prevent them from falling below the regulatory weekly liquidity threshold of 30%.

“We actively manage liquidity in our funds as dictated by the market environment,” Goldman said in an email statement.

Average weekly liquidity at about 111 U.S. prime institutional money-market funds, like the Goldman funds, was 66% at the end of September, up from 54% in the year-ago period, a Reuters analysis of U.S. regulatory filings show. Those 111 funds hold about $300 billion in assets, or 9% of the $4.35 trillion in money funds.

Although they are among the tamest investment vehicles, prime funds can be riskier than money-market portfolios that primarily hold U.S. government bonds. The upside is they may offer more yield from holding short-term debt issued by an array of top-rated global banks, for example.

Despite regulatory efforts to make institutional prime money-market funds more resilient in times of stress, they remain vulnerable to massive withdrawals, especially by clients who need cash immediately to meet their own obligations. A U.S. official recently warned that decade-old reforms to the industry may not be enough to avert major outflows during a future crisis.

Stocks have swung significantly in recent days and more volatility is expected in the wake of the U.S. election.

Under new rules put in place after the 2008-2009 financial crisis, prime institutional money-market funds have discretion to block redemptions or to impose fees when weekly liquidity falls below 30%. These funds are susceptible to big, rapid-fire withdrawals by corporations, pensions, sovereign wealth funds and hedge funds, said money fund expert Pete Crane, president of research firm Crane Data.

“These types of investors move quickly,” Crane said.

Meanwhile, the 30% liquidity threshold's link to redemption gates has become an area of concern in the money fund industry. Investors see it as a bright line for slowing or blocking withdrawals, even though no fund boards used redemption gates or fees during the height of the March crisis.