by Helen Sanders, Editor
Cash investment continues to be an important priority for treasurers globally. Large corporations in particular continue to build large cash balances while ensuring security and availability of cash remains a priority for companies of all sizes. Over recent years, money market funds (MMFs) that were initially popular in USA and UK have gained in popularity across all regions. In particular, investors are attracted to the high level of security that MMFs offer, together with same-day access to liquidity. Few corporations have the scale or appetite to deploy comparable risk management resources as the major investment managers that offer MMFs, so these instruments have proved a convenient means of accessing high-quality investment and risk management expertise.
However, as the articles in this Special Report illustrate, there are a variety of trends that are already changing the MMF landscape and will continue to do so. These trends will in turn impact on corporate treasurers and their cash investment policies and procedures. Perhaps most significantly, proposed regulatory change in both US and Europe is likely to have a major impact on MMF investors and providers if adopted in its current form. Regulatory convergence across regions is a positive step forward for investors, but there are some elements of the proposals that are causing some concern amongst industry bodies representing both MMF providers and investors. These are outlined in detail in the EACT and IMMFA responses to the proposed regulations in this special report. For example, both EACT and IMMFA argue against the proposed 3% capital buffer requirement for constant net asset value (CNAV) funds in Europe. IMMFA suggests that this measure will result in these funds no longer proving viable, despite their attraction to corporate investors. Both organisations suggest that improved disclosure together with liquidity gates and fees would provide the necessary bolstering of MMFs without creating the same degree of market disruption. This measure would align European MMF regulations with some of the proposals in the US. The EACT also warns against the bar on the use of external credit ratings on MMFs. While investors are now more aware of the potential limitations of using credit ratings alone, these ratings do provide an initial filter on fund choice, at which point corporate treasurers (and their investment managers) can then conduct their own risk analysis.