European MMFs at the Crossroads

by Robin Page, Chief Executive, TMI

As the Regulatory Update from the Institutional Money Market Funds Association (IMMFA) in this supplement makes abundantly clear, progress on the regulation of these important funds has been slow and inconclusive during this year. The European Council made an initial proposal  two years ago and while the bulk of its suggestions were welcomed in the industry there were also some less welcome propositions which may still be reconsidered. Committee changes after the 2014 European elections brought about further delays and it is proving difficult for Luxembourg, which holds the presidency of the Council until the end of this year, to maintain the traditional stance of presidential neutrality in the matter as it plays such an important role  in the European MMF industry. The net result of all this dithering is that there is still much ground to be covered before any new Regulation can be formulated - and then implemented.

Despite all the indecision, however, there is much of interest happening within the industry. Susan Hindle Barone, who has recently stepped down from her position as Secretary General of the IMMFA, chaired a roundtable in September at which five leading investment managers joined TMI in a lively discussion of some of the issues faced by corporate investors today, and how they should prepare for the challenges of forthcoming banking and MMF reforms in an ongoing low interest rate environment. Panel members noted particularly that MMF regulation has proceeded much more swiftly in the US than in Europe, with the final date for implementation in the States now less than a year away.

There is still much ground to be covered before any new regulation can be formulated - and then implemented.

J.P. Morgan Asset Management provides two articles on different aspects of investment. Aidan Shevlin discusses the wide range of investment opportunities provided by China in spite of the recent softening of growth there. MMFs were first launched in China over a decade ago, since when both retail and institutional MMFs have experienced tremendous growth, providing not only “convenient access to high quality assets and next-day liquidity”, but also typically competitive yields compared with deposits controlled by the People’s Bank of China (PBoC). Jason Straker examines the findings of JPMAM’s annual Global Liquidity Investment PeerView report, which again points up the fact that MMF reforms have now been finalised in the US, and indicates the wider spectrum of funds from which investors are able to choose – there is already a discernible appetite for separately managed accounts (SMAs), for example.

Finally Steve Lethaby of Clearstream  gives an overview of tri-party repos and how treasurers can use these instruments to give great precision in meeting their risk and liquidity objectives  whilst also achieving  high levels of straight-through processing. A tri-party repo is a secured form of money market instrument which offers considerable flexibility to investors – often, as Lethaby notes, far more than other instruments can provide. While early tri-party investors tended to be the largest corporations with significant cash holdings and treasury personnel with specific investment expertise, this is no longer the case: companies of all sizes, even those with very small treasury functions, now recognise the benefits of tri-party repos as part of a balanced portfolio, helping to meet both investment and operational objectives.

All in all this supplement offers some valuable insights for treasurers in their core responsibility for their companies’ most precious asset – cash.