Special Feature

Introduction Welcome to TMI's 2009 Guide to Money Market Funds. This is perhaps the year that money market funds (MMFs), specifically IMMFA AAA-rated MMFs have truly come into their own, providing security and liquidity during a period when both have been compromised. Like every other investment product, MMFs have been tested, and in the vast majority of cases, have proved resilient and fit for purpose...

Guide to Money Market Funds 2009

Introduction

Helen Sanders, Editor

Welcome to TMI’s 2009 Guide to Money Market Funds. This is perhaps the year that money market funds (MMFs), specifically IMMFA AAA-rated MMFs have truly come into their own, providing security and liquidity during a period when both have been compromised. Like every other investment product, MMFs have been tested, and in the vast majority of cases, have proved resilient and fit for purpose.

The crisis has revealed some limitations in MMFs, however, not least due to the ambiguity of the terminology which creates problems for investors seeking funds consistent with their risk appetite. This is something which has been discussed for years, and while significant progress has been made in some regions to standardise the product, specifically in the United States and United Kingdom, this has now become a priority, with industry bodies such as IMMFA and EFAMA working closely alongside their peers and regulators in the US. As Gail Le Coz, CEO of IMMFA explains, MMFs are set to change, but this is unlikely to have a major effect from a day-to-day investment standpoint. Rather, we are likely see more risk transparency, greater assurance of liquidity during extreme market conditions and clearer designation of different types of fund.

Until 2007, we saw the gradual growth of new types of funds, often described as “enhanced cash” funds which placed a greater emphasis on yield than funds such as IMMFA AAA-rated MMFs. The subprime crisis effectively killed off these funds, or at least put them to sleep for a while, whereas within a few months, MMFs at the far left of the risk spectrum were born, namely MMFs comprised predominantly or exclusively of government debt. Mark Allen of Goldman Sachs Asset Management looks at this topic in more detail. While these funds will continue to make a mark on the investment landscape, we are also likely to see the return of funds which retain their emphasis on security and liquidity but are also more focused on yield.

In this Guide, we are delighted to present an interview with Travis Barker of HSBC in his new appointment as President of IMMFA in which he discusses his thoughts on the future development of IMMFA and of MMFs. We also feature a variety of articles from IMMFA tracing the past and future of MMFs. François Masquelier of RTL Group and Honorary President of the EACT and Philippe Debatty, CAIA, Managing Director, Alternative Advisers S.A. assess MMFs in relation to corporate treasurers’ view of risk. Some of the most respected providers of MMFs in the industry present their views on issues such as liquidity, risk, regulation and the future of MMFs. We would like to thank all of our contributors for their very valuable insights into the changing MMF industry, and we hope that the Guide will prove a valuable asset for treasurers seeking to solve the security and liquidity dilemma.

 

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