Published: July 01, 2010
The European money market fund industry has historically been quite disparate, with a plethora of funds operating under varying guidelines. Although regulators are currently seeking to implement additional clarity in this sector, a group of money market fund managers established the Institutional Money Market Funds Association (IMMFA) in 2000 to ensure high standards were maintained and provide appropriate representation for the industry.
IMMFA is the trade association which represents the European triple-A rated money market fund industry. It is the only trade association that specifically represents money market funds. Membership is open to managers of triple-A rated money market funds domiciled in Europe that comply with the IMMFA Code of Practice. Firms who provide services to these fund managers, for example credit rating agencies and the administrative community, are also eligible for membership.
Being a member of IMMFA brings with it certain responsibilities. Investors and potential investors can benefit from an understanding of these duties, which will also help position why IMMFA money market funds remain robust.
IMMFA operates with three principal objectives: (i) ensuring its members maintain a high quality product; (ii) informing and influencing policymakers; and (iii) educating investors. The key element in delivering the first objective is the IMMFA Code of Practice. This Code, which was first published in 2003, sets standards for the management and operation of a money market fund. It is designed to deliver best practices across the IMMFA membership and help maintain a high quality product at all times.
Following recent market events, IMMFA proactively decided that its Code needed to be updated. The amendments made were the result of the deliberations of a specially formed sub-committee of IMMFA members. Their intention was to make the product more resilient and therefore better able to meet its objectives of capital security and liquidity. The Code was subsequently updated to include additional quantitative and qualitative obligations, each intended to limit the risks to which an IMMFA money market fund could become exposed.
The Code of Practice now covers all of the following key areas:
Through one of IMMFA’s standing committees, regular discussions are held on relevant issues which could necessitate further amendments being made to the Code of Practice. IMMFA regularly reviews the Code to ensure it remains relevant and that the standards required by it are set at the appropriate level.
The combination of the requirements imposed by mutual fund regulations (including the UCITS Directive), the constraints of a triple-A rating, and the content of the IMMFA Code of Practice result in IMMFA money market funds being managed to exacting standards. [[[PAGE]]]
Adherence with the Code is a condition of membership, and members agree to comply with the Code for as long as they remain a member. This condition of membership is made explicitly clear to all potential members during the application process. The decision to join the Association can only be made in acceptance of the responsibilities that are attached with it. Whilst membership is voluntary, all IMMFA members effectively agree to manage their money market funds to stricter limits than would be required by any European regulator.
IMMFA operates with three principal objectives: (i) ensuring its memebrs maintain a high quality product; (ii) informing and influencing policymakers; and (iii) educating investors.
It is a compliment to the industry that whilst IMMFA imposes additional requirements on its members’ funds, IMMFA’s membership currently accounts for nearly all assets under management in European domiciled, constant net asset value, triple-A rated money market funds. These assets have grown year-on-year from around €40bn in 2000 to over €430bn today. Indeed, assets have increased by over 40% since June 2007, whereas many other money market funds have witnessed outflows over the same period. As investor interest is the ultimate benchmark of a product, these inflows can be seen as an indication that investors accept that these funds can deliver security and liquidity in the most volatile markets.
With the increased disclosure required by the amended Code, IMMFA has taken steps to improve how easily an investor can monitor whether a fund is compliant with the obligations. These changes were also made to facilitate easier comparison of members’ funds.
Being a member of IMMFA should be viewed as demonstration that a fund manager is willing to voluntarily impose additional standards in the interests of delivering a consistently high quality product. For so much of the European triple-A rated money market fund industry to be represented by IMMFA is testimony to the value which membership offers, and regular inflows show the way in which these funds are perceived by investors. The willingness of members to be involved in the activities of the Association bodes well for the further development of the industry, and the continued commitment to delivering a robust product which benefits investors.
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