by Kathleen Hughes, Head of Global Liquidity for EMEA, JPMorgan Asset Management
Money market funds have been providing high levels of liquidity and security, in addition to yield, for over three decades. JPMorgan Asset Management is a leading global money market fund provider in terms of market share and global assets under management. In light of the extraordinary recent market events, it is now invaluable more than ever to take a look at the evolution of money market funds and how it has affected the corporate treasury industry.
The introduction of money market funds
Money market funds were first introduced in both the United States and France in the 1970s at a time when interest rates were high on both sides of the Atlantic. Regulation had capped interest rates on bank deposits which gave way to the creation of money market funds which could address the need for overnight liquidity while providing competitive yields for cash investments.
The industry in both regions developed slightly differently however, with US money market funds developing the stable Net Asset Value (NAV) model (e.g. one dollar or one euro equalling one share of the fund), while French funds were typically priced using a variable NAV model with accumulating shares. With the introduction of Rule 2a-7 as part of the 1940 Company Act by the Securities and Exchange Commission, the US market created a common set of constraints that all fund managers had to adhere to. Meanwhile in France and the broader European industry, a wider array of funds were developed under the classification of money market funds, ranging from ultra conservative to riskier short term bond funds. This lack of unified definition led to the incorporation of the International Money Market Funds Association (IMMFA), an industry run body that provided guidance to managers.
A body to ensure best practice in Europe: IMMFA
All JPMorgan money market funds domiciled in Europe are members of IMMFA and Kathleen Hughes, European Head of Global Liquidity, is a board director. This trade association for providers of AAA-rated stable NAV money market funds domiciled in Europe exists primarily to represent and promote this product. IMMFA maintains a Code of Practice for the industry, provides generic information and performance data about funds, lobbies governments and regulatory bodies for appropriate treatment of institutional money market funds and supports the formal recognition of institutional money market funds in the UK, Europe and elsewhere. The IMMFA code of practice is based on Rule 2a-7 in the US and sets out best practices for managing stable NAV money market funds. In Europe there are now over 30 IMMFA member fund managers. Market size is over $554 billion in AUM (Source: IMMFA report dated 17 October 2008 using FX rates as of 17 October).