Normally, the summer is a time for relaxation and enjoyment... but not the summer of 2007!! The fallout and repercussions of the turmoil in financial markets continue, and as yet, there is no light at the end of the tunnel. However, we at the Institutional Money Market Funds Association (IMMFA) continue to have a positive outlook.
Not all money market funds have escaped unscathed from the turmoil which has been affecting global economies since last summer, but it is important here to draw the distinction between the different types of money market funds that are available. Some funds are managed with the primary objective of producing an enhanced yield for investors whilst still offering an element of capital security and liquidity. For other money market funds, the yield is of secondary importance when compared with the primary twin objectives of preservation of capital and access to that capital upon demand.
It is important to draw the distinction between the different types of money market funds that are available.
IMMFA only represents the latter style of money market fund - these funds are often referred to as ‘liquidity funds’, ‘treasury-style money market funds’, and now increasingly as ‘422 Funds’ (after the relevant asset valuation section of the CESR guidance associated with the Eligible Assets Directive). Irrespective of the nomenclature for these funds, the reality of the situation is that there are significant differences in the way these funds are managed when compared against the ‘enhanced’ - or ‘investment-style’ money market funds. For this reason, IMMFA fully supports a move to a pan-European definition of a money market fund, similar to that in operation in the US under SEC rule 2a-7.