Treasury Today Country Profiles in association with Citi

MMF portals: show me the money

When it comes to money market funds (MMFs), treasurers are looking for full visibility into their investments, particularly in terms of counterparty exposures. MMF portals can provide this transparency, from high-level overview through to the granular detail.

When the financial crisis reached MMFs in 2008, corporate treasurers were facing challenges they had never encountered before. There was no transparency to the fund holdings. Not knowing what their portfolios held quickly led to redemptions in an effort to preserve capital. There were no exposure analytics-based transparency products or practices in place. There was no methodology or best practice to follow.

So the first and incredibly important step that fund advisers and technology vendors had to take was to help their clients understand the credit exposure of their fund holdings. Corporate treasurers were looking at and evaluating basic portfolio exposure for the first time.

In the intervening years, corporate treasurers have become more sophisticated. “Today, clients are demanding more thorough and frequent reporting. As such, ICD has increased its fund reporting cycle to a weekly basis to shorten the time between potential risk and treasury response,” says Jeff Jellison, CEO North America at Institutional Cash Distributors (ICD).

Corporate treasury demands an understanding of their credit exposure across all MMF positions with on-demand access to collateral default swap pricing trends, stock price fluctuations and capital adequacy to mitigate that risk. Credit risk could have and should have been avoided in 2008 if transparency technologies were in place.

Today this level of transparency can be achieved through an MMF trading and risk management portal. A portal should give investors the ability to drill-down into their underlying investments to examine exposures at the most granular level possible along with the ability to easily aggregate exposures at the counterparty, country and instrument level.

Freedom of information

MMF portals provide investors with the application forms, prospectuses, fact sheets and portfolio holdings from the funds themselves. Anything that the fund family releases to their investor base or potential investor base, such as marketing material or investor material, for example, is all available through a portal.

In terms of the counterparty exposures, portals receive updates on the underlying holdings of MMFs as often as the funds produce them. In Europe, this could be on a daily, weekly, fortnightly or monthly basis – there is no legislation for the funds to provide this at a certain time or rate. This differs from the US, where these need to be reported on a monthly basis. The information from the funds comes directly to the portal.

“In terms of our risk analysis tool, we ask the funds to provide that information on underlying holdings. This information goes into a system to ensure industry standard classification, and once checked it is loaded onto the portal,” says Maryum Malik, Director of Business Development, Wealth Management at SunGard Global Network. “In terms of risk analysis, an MMF portal could allow you to aggregate exposure across multiple funds and refer to individual exposure as well.”

While the fund holdings data is not changed in any way from what is issued by the fund providers, this highlights some of the ways in which an MMF portal can add significant value to corporate treasurers by:

  • Standardising content into a singular format.

  • Enriching data to allow for aggregation at various levels on a consistent basis.

  • Providing a user-friendly and intuitive way to analyse and interrogate the data.

Holdings data is updated frequently, with all data shown as of the same time period so that it is directly comparable, so the portal should not display month-end holdings of Fund A versus the week-end holdings of Fund B.

“Because most funds delay the release of their holdings data by between one and five business days there will be some staleness of the data,” says Greg Fortuna, Global Head of State Street Fund Connect. “Investors should use transparency tools as an indicator of a portfolio manager’s strategy at a point in time; if the investor is concerned by credit market events following the release of the most recent holdings they can access the most recent data, usually daily data, by clicking on available links for each fund within the State Street Fund Connect application.”

In addition to providing holdings analysis of their current portfolio, many MMF portals also provide the ability for the treasurer to create investment scenarios, allowing them to manipulate their current portfolio in order to assess the impact of potential investment decisions on their risk profile. For example, if you have three funds and you want to add a fourth fund to your portfolio, the portal can show you the underlying exposure potential underlying exposures. Additionally, if you want to take $100m out of one fund and put it into another, you can also run the scenario analysis on this to see what the consequences, intended or otherwise, of this move should be.

“Our portal is bespoke to the amount of money that investors put into those funds, pro-rata against the monetary amount,” explains SunGard’s Malik. “Say for example you have three funds, and each of these funds has 2% in Bank A, this equals 6% in Bank A. However, if you have $1m in one fund, $3m in the next and $2m in another, then your actual exposure to Bank A may only be 3% depending on the pro-rata amount of money you have in those funds.”

Without using a portal that can calculate the pro-rata data and aggregate it across the multiple funds, this can very quickly become extremely complicated, and the treasurer may be left in the dark with regard to their actual exposure. The information that you get from the funds are all very different, which is where the level of standardisation that a portal brings is important. Usually, all of the information that comes into a portal from a third-party provider is matched against industry standard information.

This standardisation means that the treasurer can look at the counterparty exposure – how much they have in each instrument, institution and the underlying country risk – is it French or German paper, for example. This also gives visibility over the credit ratings of those underlying holdings, what the instrument actually is in terms of maturity type, coupon and yield, while it can also show the holdings that have matured.

A portal gives investors an insight into the fund managers – an idea over the pattern of investing, which asset classes they tend to favour, the credit quality – a treasurer can understand the fund manager’s strategy a little more by analysing the data that the portal presents them with.

A portal gives investors an insight into the fund managers – an idea over the pattern of investing, which asset classes they tend to favour, the credit quality – a treasurer can understand the fund manager’s strategy a little more by analysing the data that the portal presents them with. Some portals will also support additional short-term asset classes, such as time deposits and separately managed accounts, for example. This provides the treasurer with a comprehensive view of their exposures across their entire investment portfolio.

Compliance control

Compliance integration is the key component in MMF portals. Portal compliance gives companies the ability to review and set investment guideline parameters and trade MMFs based on those parameters and the corporation’s risk tolerance.

Portals can be used to set investment policy guidelines and these compliance features can be monitored to stay within those guidelines. These guideline parameters include, but are not limited to:

  • Maximum holding in a single fund.

  • Maximum holding in a single country.

  • Maximum holding in a single counterparty.

  • Maximum invested in total assets under management (AUM).

Beyond this, clients can establish trading rules that will block or alert the investor from making an out of compliance trade. Rules are applied at the fund level, eg the company should not be allowed to hold more than X% of a fund; or at the portfolio level, for example, the company does not want to purchase a fund with more than Y% holdings in a counterparty or country.

There are ways to ensure pre-compliance and post-compliance control when using an MMF portal. With pre-compliance control, many portals operate both ‘hard limits’ and ‘soft limits’. The treasurer is given a warning as a soft limit: for example, if you are only allowed £100m in a fund and you’re on £90m, a soft limit will give you an early warning that you are close to your maximum. It is still possible to continue with this trade in this example. A hard limit would occur if you already have £100m in a fund and you tried to put in an addition £10m. A hard limit would come up saying that you are not allowed to continue the trade. Limits could either be set in monetary amounts or percentage amounts.

There is also post-compliance control. The treasurer can set a percentage amount, for example giving their investment policy a limit of 5% of any one fund. They may then instigate a trade that takes them to 4.9%. That afternoon there is a shift in the fund’s Assets Under Management (AUM) that turns this 4.9% into 5.1% in real terms. In this scenario, the treasurer will receive an email letting them know that they have breached their limit. They can then go in and sell, to get the total invested back below 5%.

Concentration limits can also be set, with either percentage or monetary limits, which are applied to the fund family. A treasurer may invest in Bank A’s fund family in three set currencies, and decide on a limit of £100m to invest with Bank A. This can be broken down into allowing £33m in each currency, or even broken down into the sub accounts, allowing £10m in one sub account and £20m in another.

This high level review of the control mechanisms possible in MMF portals demonstrates just how sophisticated they can be. Further developments are also possible, with a number of portals looking at increasing their functionality in terms of credit rating changes. Portal providers get the information they need from the credit ratings agencies that they use, so the information is all there for them to build additional development into the portal so that when there are ratings changes, they can alert portal users when their instruments within the funds have a ratings event.

In terms of security, users of the portal can have their access privileges tailored by the administrator of the portal. Some will be ‘view only’, some will be ‘input trade only’, some will be ‘organise trade only’, while others will be a mix of all three. For example, when a junior dealer goes to make a trade, the authorisation process can either initiate an email to a portal administrator or an alert to their smartphone, and they can then either approve the trade or review it.

State Street Fund Connect reporting coverage

  • Portfolio overview – graphical summary of exposure to a range of user defined criteria (fund, fund provider, currency, fund category, fund domicile).

  • Balance and accruals.

  • Historical transactions.

  • Fund performance and statistics.

  • Fund holdings – counterparty, country, instrument, maturity buckets and ratings.

  • Virtual portfolio – allowing for pre-trade scenario testing.

Report parameters, fields, sort order and grouping can be customised and saved; seven years of historic data is available for audit purposes and reports can be exported in various formats including csv, xls, pdf and jpeg.

Timely data

In response to corporate treasury demands for more up-to-date information, a number of the portal providers have increased their fund loading. Most list ‘as of’ dates next to all data so that their clients know when the information was provided by fund companies and third-party providers.

State Street’s Fortuna describes their portal as taking in the following various data feeds:

  • Balance and accrual information – loaded daily.

  • Fund statistics (yields, AUM, weighted average maturity (WAM) etc) – loaded daily.

  • Portfolio holdings – loaded daily or weekly depending on the individual fund provider.

  • Enhanced/normalised portfolio holdings – currently monthly, moving to bi-weekly (with a lag of between one and five business days).

“The funds themselves want the information used on portals updated as often as they provide it,” explains SunGard’s Malik. “We have automatically generated emails that go to our client base 24 hours a day, as soon as the information is provided by the fund.”

The importance of integration

Treasury management system (TMS) integration is one of the most important features of an MMF trading and risk management portal. “ICD Portal is integrated on several treasury workstations and management systems,” says Jellison. “We are receiving new integration projects at a weekly pace. Integration is so important to our corporate treasury clients that ICD created a dedicated integration team at its technology centre in Golden Colorado.”

End-to-end integration processes such as that at ICD are established to help understand specific client needs and third-party system requirements. Once a determination is made on the data that the treasurer wants to ingest, and where in the workflow they want it ingested, an integration team from the portal provider can work with both the corporate and TMS provider to develop a seamless integration.

“Fund Connect can be fully integrated to most independent treasury management systems. Fund Connect supports both real-time, event driven integration and batch file uploads, and has integrated with a number of client TMSs at no cost to the end user. The constraining factor is generally the TMS provider who may levy a charge for integration effort on their side,” says State Street’s Fortuna.

Reporting for duty

A current, state-of-the-art MMF trading and risk management portal will also have detailed reporting capabilities. This should cover areas such as current and historical performance, sector analysis, maturity distribution, consolidated fund holdings, and leading indicator metrics. An example of reporting functionality can be seen in the box above.

The need for clear, concise and timely reporting has been a high priority in treasury ever since the financial crisis. All it takes is for one Board member to read a negative story about a certain country or bank before the email arrives in the treasurer’s inbox asking what the company’s exposure to that individual entity is.

Most portals can easily define underlying country exposure. If you are concerned about Country A, you can go into the risk analysis function of the portal and see the country exposure of all of your MMF investments to Country A. All of this information can be downloaded into your TMS. Portals will also provide a wide range of reports that are updated on a regular basis, with the treasurer able to select the specific dates of the report they want to pull.

These can include areas such as investment history, dividend statements and portfolio holding statements. These reports can usually be customised for the individual investor, so for example if you see a report that is not in a compatible format, or would like additional columns added to it, this can quickly be changed.


MMF portals can provide visibility over investments and counterparty exposures, aid investment compliance, allow the user to receive data as soon as it is released by the fund, and provide tools to enhance treasury reporting and audit trails. The world has moved on very rapidly since the financial crisis, and vendors today have solutions that not only allow treasurers to effectively manage their MMF investments, but also add value to this process.