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The Contribution of IMMFA Funds to the Money Market

by Nathan Douglas, IMMFA Secretary General

In a world which has seen an increased volume of questions asked about the value added by certain financial transactions, what real benefit is added by money market funds? One benefit is clear to all those who use them. Money market funds provide a means through which risk can be diversified. The fact that these funds hold a large number of securities collectively held by the investors in the fund results in a spreading of risk across those securities. If an issue were to arise with one of the underlying securities, its impact upon any individual investor should be limited given the diversification within the fund. Other benefits arise through, for example, access to the professional cash management services of the fund manager.

Although this treasury management solution is undeniable, and available at a lower cost than what would be incurred if a corporate treasurer were to achieve such diversification through direct purchases, do money market funds offer any economic benefit? To answer this, the Institutional Money Market Funds Association (IMMFA) commissioned PwC Luxembourg to perform a study to assess the contribution of IMMFA funds to the money markets.

Key findings

Research was performed which analysed the money markets, how they have changed over time, and the absolute and relative holdings of IMMFA funds within those money markets. The US, UK and Eurozone money markets were considered given that IMMFA funds operate in three principal currencies: US dollar, sterling and euro.

As the mid-2010, IMMFA funds held over 16% of outstanding euro-denominated paper.