Cash & Liquidity Management
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Changes Pending for Money Market Funds

by David Rothon, Global Fixed Income Product Specialist, Northern Trust

The upheaval in the money market fund sector during the past 18 months has prompted a number of proposed regulatory changes in the United States, United Kingdom and Europe. Although designed to enhance the safety and transparency of these investments, the proposed changes are also likely to cause institutional investors to rethink their approach to investing in money market funds.

Investors have demanded a higher level of transparency to understand the underlying risks with a fund.

Money market funds have long been considered a bastion of safety, even during times of financial crisis. That changed last September, however, when the net asset value (NAV) of a US money market fund fell below US$1 per share and the fund couldn’t meet redemption requests.

The unprecedented events of last year serve as a reminder that money market funds do carry investment risk and that investors can lose money. “Investors have demanded a higher level of transparency to understand the underlying risks with a fund,” says David Rothon, global fixed income product specialist at Northern Trust, London.