Getting to Grips with the New European MMF Rules
By Jim Fuell, Head of Global Liquidity Sales, International, J.P. Morgan Asset Management
With the European Money Market Fund (MMF) Regulations set for implementation in just over a year’s time, Jim Fuell explains how he and his team are helping their clients to understand their options under the changes that the new regime will bring.
The recently approved European Money Market Fund (MMF) Regulations have introduced several new structures for short-term MMFs. What options do you intend to offer your clients?
The new regulations set out three new structures for short-term MMFs: public debt Constant Net Asset Value (CNAV), Low Volatility Net Asset Value (LVNAV) and Variable Net Asset Value (VNAV). Under the new rules, the line-up of our liquidity fund range will be changing, but the new regulation will not change the investment profiles of the funds or our investment philosophy. Figure 1 gives a summary of the fund range options we intend to offer in the short-term space for USD, GBP and EUR investors. We continue to evaluate additional structural options and currencies, and will communicate with investors as these evolve.
Our investors have indicated that their preferred option for government investment is the public debt CNAV MMF, while the most popular option for credit or prime-style liquidity investors is the LVNAV structure. We will work to transition our existing range to the new structures in a way that minimises the impact for clients. Alongside the public debt CNAV and LVNAV structures, we also intend to introduce VNAV short-term MMFs for investors who prefer the features offered by this structure under the new regulations, or who may prefer to avoid the structured fees and gates that come with both the CNAV public debt and LVNAV MMFs.
The deadline for implementing the changes to existing MMFs is not until January 2019. Will you wait until then to make these changes?
Existing MMFs have until 21 January 2019 to comply with the new rules, but at this time we are targeting an earlier date of the fourth quarter of 2018 for the implementation of our modified fund line-up. Our top priority is to incorporate the changes in a way that works for our existing investors, so we are keeping close to them to discuss their options and preferences under the new rules.
Fig 1 - J.P. Morgan Asset Management’s planned fund range options
How should your corporate investors expect the changes to happen?
We take our regulatory responsibilities very seriously, and we are just as committed to making the transition to the new regime as smooth as possible for our investors. It is most likely that we will introduce our new line-up through a combination of conversions of existing funds and the launch of new funds. None of our existing funds will be modified without detailed communication and a notice period to our investors.
In line with that commitment, we’ll be communicating any changes directly to our investors as 2018 unfolds, with our global team of client advisors keeping them up to speed throughout. In order to enact the changes required under the regulation, we need to change the Articles of Incorporation of our funds; in the first half of 2018, investors will be invited to vote on these changes at the Annual General Meeting.