Paths Through the MMF Maze
by Robin Page, Chief Executive, TMI
We are delighted to publish this Special Report on money market funds in association with the Institutional Money Market Funds Association (IMMFA). Our two most recent reports on this subject were both much concerned with the changing regulatory landscape, with new and proposed regulations in both the US and Europe having a strong impact on corporate treasurers and their cash investment policies and also on corporate investors – the overview of global regulators provided here by IMMFA shows exactly who is making the rules on both sides of the Atlantic and how they operate. While there is still a good deal of uncertainty in the market, much change has now been implemented, and Joseph Sarbinowski of Deutsche Asset & Wealth Management provides a thoughtful reflection on just how the market has evolved as a result of both regulatory mandates and market dynamics. He points out that regulators and industry associations globally have been “particularly focused on enhancements that could reduce money market funds’ susceptibility to risk during times of market turmoil”.
One important change is in the area of transparency, a question addressed by Susan Hindle Barone, Secretary General of the IMMFA in her article on that specific subject. She clarifies just what transparency implies – “at the most fundamental level transparency is simply openness about what a fund is holding and how it operates” – and demonstrates how much progress MMFs affiliated with the Association have made in the amount of information they share with investors in the years since the credit crisis. A second article by Hindle Barone is concerned with forthcoming legislation and gives a detailed examination of just how MMF regulation is decided and the significant implications for investors. She points out that if European CNAV MMFs are changed so much that they become ineffective for end-investors “the money that is currently invested in them [c. €475bn] will need to be placed elsewhere”. This scenario is addressed by Nick Jones and Hugo Parry-Wingfield of HSBC Global Asset Management in their article ‘A Global View of Cash Investment’, which provides clear and authoritative pointers for treasurers as they struggle to keep abreast of “global, regional and local investment trends and opportunities … in partnership with a trusted asset management partner”.
Triparty repo is so much easier than you think, claims Pascal Morosini of Clearstream, and he proceeds to substantiate this claim in his article which shows clearly that it is “one of the simplest forms of secured investments, and really just a bank deposit backed by assets which are independently held and managed”. He ascribes the increasing interest in triparty repo to events in the aftermath of the financial crisis which has left cash-rich corporates uncertain how to invest their money as unsecured money deposits “no longer seemed such a safe option as concern over counterparty risk grew” – and “a triparty repo is more secure”.
Jim Fuell of J.P. Morgan Asset Management gives us an illuminating interview in which he shows that while the changing market and regulatory landscape is still creating uncertainty, “by preparing for change, there is the potential for treasurers to take advantage of new investment opportunities” and by being open-minded in this respect, they will be able to achieve better yields. He outlines how treasurers can do this, and concludes by noting that globalisation is leading to investment opportunities in a wider range of currencies: overall, he sees MMFs as remaining important, while other variable NAV funds may also be worth considering in the future.
One area which is undergoing quite dramatic change is that of MMF trading portals. As Justin Meadows of MyTreasury notes, when these were first introduced in the early 2000s “they were typically single-product, stand-alone systems delivering basic market discovery, trading and reporting capabilities”. But this early electronic trading has undergone major transformation, with a new breed of multi-asset class portals providing access to a wide range of instruments across several different markets. For companies intending to adopt a broader range of technology solutions and implement a “fully integrated treasury trading infrastructure” he suggests a five-step approach rather than a ‘big bang’ with all its associated risks; the future, he says, lies with “multi-instrument, automated and integrated platforms” which will deliver “joined-up added value” to their customers.
Nobody would claim that the different types of MMF are totally simple to understand, evaluate and adopt, but these articles, written by professionals who are thoroughly familiar with all the complexities will go far in helping corporate treasurers to come to their own conclusions as to what best suits the particular needs of their companies.