MMFs: The Funds that Deliver
by Robin Page, Chief Executive
We are delighted to introduce TMI’s 2010 Guide to Money Market Funds, published in association with the Institutional Money Market Funds Association (IMMFA). Firstly, congratulations are in order, as this year the Association is celebrating its tenth anniversary, having been established in the millennium year by a group of money market fund managers to represent the industry and set appropriate standards for its operation. Its members now account for over EUR430bn of assets under management in European-domiciled, constant net asset value triple-A rated MMFs, compared with EUR40bn ten years ago.
When we published the 2009 edition of the Guide, our Editor Helen Sanders noted that MMFs were ‘truly coming into their own’, almost all of them having managed to provide both liquidity and security during a fearsome period for the financial sector. Today Travis Barker, Head of Liquidity Business Development at HSBC Asset Management, writes of the returning confidence of treasurers in ‘prime’ MMFs, i.e., those which invest in financial institution and corporate assets, reflecting a more balanced view of risk than we saw during 2008 when government funds took precedence. This is one among several positive signs that treasurers have not forgotten the lessons learned during the crisis and are taking an informed approach to their cash investments.
While MMFs did indeed prove to be among the most robust and reliable investments during the crisis, there were a few unfortunate exceptions, and there is now strong market support for tighter regulation to ensure that they are managed to common standards. Several of the articles deal with this question: the Secretary General of the IMMFA, Nathan Douglas, provides a succinct review of recent changes, including the revision by the Association of its Code of Practice, initiatives by the Committee of European Securities Regulators (CESR) published in May this year and, in the US, amendments to the rules of the Securities and Exchange Commission (SEC) which govern the management and operation of MMFs.
A prime object of these initiatives is to implement additional qualitative and quantitative restrictions that will improve the robustness of the products, and many of them tackle the crucial issue of risk. A close scrutiny of credit and counterparty risk is undertaken by Kathleen Hughes, Head of Global Liquidity for EMEA at J.P. Morgan Asset Management. As she points out, corporate treasurers have only to look at the ongoing fiscal issues in the Eurozone, in particular the threat of sovereign default in Greece, to see why these risks need to be evaluated carefully and systematically. Risk, of course, has always to be balanced against reward, and this dilemma is the subject of the article by David Rothon, Director of Cash & Fixed Income Product Management at Northern Trust. While acknowledging that the European crisis continues to encourage conservatism in treasurers’ investment approach, particularly in relation to sovereign risk, David identifies a growing appetite for a flexible MMF product to complement prime AAA-rated funds, to provide enhanced yield on at least a portion of the company’s cash while still maintaining security and liquidity. What would such a product look like? Bearing in mind the regulatory changes that are in process, he sees the likelihood that in addition to today’s stable NAV (net asset value) MMFs, there will be some demand for variable NAV MMFs.
The chairman of the Association of Corporate Treasurers of Luxembourg (ATEL), François Masquelier, tackles the subject of MMF accounting in typically head-on style, looking at the topic in conjunction with two relevant policy papers by the IMMFA on the international standards IAS 7 and IFRS 7, both aimed at providing guidance for fund users, while Susan Dargan, chair of the IMMFA Operations Committee, takes a different perspective in her article on amortised accounting.
There is indeed a wealth of guidance in our Guide, ranging from a basic A-Z of the instruments purchased by a money market fund via technical topics such as credit processes to more esoteric subjects such as ‘breaking the buck’, a complex mathematical formula for an unfortunate (but fortunately rare) occurrence in the money market world, elegantly explained by Travis Barker. Justin Meadows, Founder and CEO of MyTreasury, gives us a glimpse into the expanding world of MMF portals. And none of the writers in this publication, which will be useful to treasurers who have never dipped their toes into the MMF water as well as those who are experienced swimmers there, lose sight of what Gail Le Coz, Chief Executive of the IMMFA, points out: that investors accept that these funds can deliver security and liquidity in the most volatile markets.