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Money Market Fund Makeover Innovation in Short-Term Investments Up until recently, Money Market Fund reform was a prospect that many treasurers were reluctant to embrace. However, in this new regulatory era it is in the investor's interest to take advantage of the products that are emerging from reregulation, such as the fixed-term fund.

Money Market Fund Makeover Innovation in Short-Term Investments

Money Market Fund Makeover Innovation in Short-Term Investments

By Eleanor Hill, Editor

The doom-mongering around money market fund regulation has now stopped. Instead, talk has moved on to low interest rates, credit quality, digital investment channels, and the rise of environmental, social and governance investment criteria. Treasurers are also exploring different short-term investment options, such as separately managed accounts, and their curiosity is being piqued by a new product, the fixed-term fund.

This time last year, money market fund (MMF) reform in Europe was still the hot topic in the short-term investment space, with some industry commentators predicting a significant decline in corporate usage of MMFs as a result of the new regulations (see Box 1 for a summary of the changes). Despite a surprise alteration to the reforms late in the day, investors have largely taken the new regulations in their stride since they came into force across the EU on March 21 2019.


Box 1: Regulatory snapshot

As Jim Fuell, Head of Global Liquidity Sales, International, J.P. Morgan Asset Management, reminds us: “The new regulations provide investors with a high degree of optionality for investing their short–term cash, with two types of MMFs and three structural options available.”

Fuell notes that MMFs must be classified as either a Short-term MMF or a Standard MMF:

Short-term MMFs
Short-term MMFs are funds that maintain the existing conservative investment restrictions currently provided under the ESMA Short–Term Money Market Fund definition, including a maximum weighted average maturity (WAM) of 60 days and maximum weighted average life (WAL) of 120 days.

Standard MMFs
Standard MMFs reflect the existing ESMA Money Market Fund definition, including a maximum WAM of six months and maximum WAL of one year.

MMFs may be structured as Public Debt Constant NAV (“CNAV”) MMFs, Low Volatility NAV (“LVNAV”) MMFs or as Variable NAV (“VNAV”) MMFs:

  • Public Debt CNAV MMFs must invest 99.5% of their assets into government debt instruments, reverse repos collateralised with government debt, and cash, and are permitted to maintain a constant dealing NAV.
  • LVNAV MMFs are permitted to maintain a constant dealing NAV provided that certain criteria are met, including that the market NAV of the fund does not deviate from the dealing NAV by more than 20 basis points.
  • VNAV MMFs price their assets using market pricing and therefore offer a fluctuating dealing NAV.


According to recent global survey results from trading and investment risk management platform ICD, there has been “minimal impact on MMF investment post US and EU money fund reform,” with 88% of investors planning on increasing or maintaining their current level of investment in MMFs. In fact, zero European respondents to the survey indicated a decrease in USD and GBP MMF investments due to European MMF reform, and only 2% said they would decrease EUR MMF investments.

Kathleen Hughes Managing Director, Global Head of the Liquidity Solutions Client Business, Goldman Sachs Asset Management

Kathleen Hughes
Managing Director, Global Head of the Liquidity Solutions Client Business, Goldman Sachs Asset Management

Jim Fuell, Head of Global Liquidity Sales, International, J.P. Morgan Asset Management, agrees that the regulatory changes have gone smoothly: “The transition by corporates into the new MMF environment was fairly straightforward with minimal disruption, particularly for short-term money market funds,” he says. However, he notes that “the somewhat unfortunate last-minute decision by regulators to eliminate the use of a reverse distribution mechanism – used to manage the current negative interest rate environment in the euro space – resulted in short-term investors having a more limited set of options for their euro investments”.

Asset managers have been proactive in keeping treasurers interested in MMFs, however. As Reyer Kooy, Managing Director, Head of Institutional Liquidity Management, EMEA & Asia, DWS, explains: “I believe the regulation has struck the right balance between increasing the security of MMFs for investors and yet preserving their usefulness. Post-regulatory reform, MMFs remain fundamentally the same – certainly at DWS. Clients have continued to treat the fund as a cash equivalent and it has retained its T+0 accessibility.”

As for the last-minute change to the regulation that Fuell mentioned, Kooy notes that this “decision to ban the reverse distribution mechanism caused some concerns initially. But at DWS we did not lose a single MMF investor as a result of that change, thanks to clear communication around the impact.”

Kathleen Hughes, Managing Director, Global Head of the Liquidity Solutions Client Business, Goldman Sachs Asset Management, also sees sustained interest in MMFs: “In the dollar space, where interest rates are higher than sterling and euro, corporates are becoming much more active with their cash. They are quickly realising that if they’ve not been paying close attention to how their cash was invested, they’ve potentially been leaving money on the table.”

As such, Hughes is seeing growth in MMFs, with “inflows into US dollar products”. She continues: “There is still interest in the short duration space, but that varies significantly by client and is driven by the inversion of the USD yield curve in the front end.” Meanwhile, the sterling market, she says, “is being impacted by Brexit and the overall political environment in the UK. Clients are therefore placing cash in MMFs while they wait for the uncertainty to clear”.


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