Special Feature

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2008: Year of the Money Market Fund Portal? TMI has seen a significant amount of coverage on money market funds (MMFs) over the past two year s, coinciding with a period of substantial but steady growth in the use of these instruments amongst European corporations, particularly in the UK. Use of MMFs in the United States still dwarfs Europe, and the recent credit issues have had very little impact in fact, with US money market fund assets reaching $3 trillion in October of this year, 2007 marks the biggest asset incr ease in money market funds’ 35 year history. In Europe, however, the trend continues upwards, with companies in continental Europe as well as the UK increasingly seeing the benefits of AAA-rated money market funds as repositories for their short-term cash, particularly as other types of money funds, such as the investment-style funds in countries such as France have had a rocky ride. In this article, we look at one of the most important developments in the money market fund industry , namely how technology is fuelling the growth of MMFs in Europe and the new opportunities which these tools present.

2008: Year of the Money Market Fund Portal?

By Helen Sanders, Editor

TMI has seen a significant amount of coverage on money market funds (MMFs) over the past two years, coinciding with a period of substantial but steady growth in the use of these instruments amongst European corporations, particularly in the UK. Use of MMFs in the United States still dwarfs Europe, and the recent credit issues have had very little impact - in fact, with US money market fund assets reaching $3 trillion in October of this year, 2007 marks the biggest asset increase in money market funds’ 35 year history. In Europe, however, the trend continues upwards, with companies in continental Europe as well as the UK increasingly seeing the benefits of AAA-rated money market funds as repositories for their short-term cash, particularly as other types of money funds, such as the investment-style funds in countries such as France have had a rocky ride. In this article, we look at one of the most important developments in the money market fund industry, namely how technology is fuelling the growth of MMFs in Europe and the new opportunities which these tools present.

Companies which use MMFs can really be divided into two categories - those who use them as their primary short-term investment vehicle, who may divide their cash between various funds, and those who use MMFs for only a small amount of their cash - for example, they may only use one or two funds, and often only for late-day cash. While the latter category is still the larger of the two, this is changing, with companies using MMFs more heavily as they become more familiar with them as investment options.

Technology surge

In recent years, there has been a surge in the availability of technology with which to deal MMFs and 2008 promises to be a very significant year in this respect. Many money market fund providers now provide proprietary tools with which to deal their products, some of which, such as Goldman Sachs Asset Management, also provide access to funds of other providers. When dealing technology is new, just as was the case with FX, for example, there is a place for single provider portals, but as the technology matures and investors gain in familiarity, it seems likely that single provider portals will only thrive in certain circumstances: firstly, amongst treasuries that only deal in MMFs to a limited degree, and therefore only need access to one or two funds; and secondly, if access to MMFs is provided as part of a bank’s cash management portal which allows a variety of liquidity-related tasks such as balance/transaction retrieval, cash positioning, on-line deposits/loans etc.

There is a debate in the industry about how much information about the fund banks will want to reveal.

With the exception of these two scenarios, as companies increase the levels of cash invested in MMFs, and expand into a wider range of funds, it is difficult to see that companies will want to use different dealing portals with the associated inconvenience, differences in functionality and lack of integration with the treasury management system. There are already multi-fund portals available in Europe, but January sees launches by two providers of multi-fund portals. Firstly, the SunGard Transaction Network’s (STN’s) Money Markets portal, which is one of the largest portals in the United States, becomes licensed to trade in Europe, with the advantage that many European funds are already available through the portal and it is closely integrated with SunGard’s treasury management systems, although it is not limited to SunGard customers. Secondly, ICAP plc is due to launch MyTreasury in January 2008. The service is based on a European Commission funded project, and combines dealing capabilities for a range of products including MMFs, deposits, loans and ultimately ECP.

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