Cash & Liquidity Management
Published  7 MIN READ
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Money Fund Reform: Calling All Treasury Cash Managers

by Joe Sarbinowski, Global Head of Liquidity Management, Global Client Group, Deutsche Asset & Wealth Management

Regulators that govern the money fund industry globally are on the verge of finalising significant changes that will fundamentally alter many of the attributes cash investors have come to value. These changes will place corporate treasurers, one of the larger investor segments in money market funds (MMFs), in the potentially uncomfortable position of having to think differently about cash; namely that cash is indeed an asset class that requires risk-focused due diligence and that they will need to evaluate alternatives more proactively.

While investor demand for greater transparency and regulatory changes since the 2008 crisis have strengthened the resiliency of MMFs, looming further reform for both the money markets and financial industry is very likely to alter the range and characteristics of both money market funds and direct instruments alike. This new reality will require treasurers to consider an increasingly dynamic model to match their firm’s unique investment objectives. Traditional overarching goals such as principal preservation, liquidity, and investment performance, while still critical, will need to be prioritised according to the specific requirements of clearly defined investment tranches. As the capital markets evolve and adjust by offering a greater variety of products, increased customisation and transparency, so too must treasurers adapt. By properly segmenting portfolios, staying aligned with changing products, and partnering with well-resourced, experienced advisors, they can properly optimise their cash investments.

The burden for treasurers becomes even higher when regulatory efforts to reduce reliance on credit rating agencies are considered. Historically, most treasurers leveraged internal resources and third party credit ratings to select a small basket of short-term investments including government bills, bank deposits and triple-A rated MMFs. This was a straightforward approach from an accounting perspective and relatively inexpensive. In this model MMFs provided high liquidity, wide diversification, and essentially represented a partial outsourcing of risk management for the organisation.