Treasury Today Country Profiles in association with Citi

Fund managers begin to outline future European MMF investment options

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J.P. Morgan Asset Management is the first fund manager to announce its new range of funds compliant with incoming European money market fund reform.

Last week, J.P. Morgan Asset Management became the first asset manager to publicly announce what its range of funds will look like in the new European money market fund (MMF) regulatory landscape.

Most notable is the introduction of a new Low Volatility Net Asset Value (LVNAV) fund, which is most akin to the now outlawed Constant Net Asset Value (CNAV) fund that many corporates have typically used (CNAV funds are still permitted but only when they invest in public debt). See table 1

“A great advantage of the new regulation is that it presents optionality for corporates,” says Jim Fuell, Head of Global Liquidity Sales, International at J.P. Morgan Asset Management. “For USD, GBP and EUR in our short-term fund range, we are planning on making available all of the MMF options that are available under the new regulation.”

Reform in action

As Treasury Today has previously reported, the incoming changes to European MMF regulation agreed upon earlier this year require fund managers to make several changes to their funds. These include changes to structure, composition, valuation, liquidity requirements and information reporting.

Table 1: Planned fund range options

Currency Public debt constant net asset value (CNAV) Low volatility net asset value (LVNAV) Variable net asset value (VNAV)
USD

USD treasury CNAV

USD government CNAV

USD credit LVNAV

USD treasury VNAV

USD government VNAV1

USD credit VNAV

GBP GBP gilt CNAV GBP credit LVNAV

GBP gilt VNAV1

GBP credit VNAV

EUR EUR government CNAV1 EUR credit LVNAV EUR credit VNAV
  1. Continuing to evaluate investor demand

And whilst existing MMFs have until 21st January 2019 to become compliant with the new rules, Fuell states that J.P. Morgan Asset Management felt it important to outline its intentions early.

“With just over a year until the new regulations become fully effective, helping corporates map out and navigate a clear route to regulatory readiness is always front of mind,” adds Fuell. “We therefore feel it is important that investors know what options are available to them, in order for them to have adequate time to assess these options, make any necessary updates to their internal investment policies, and review any operational and reporting changes that they need to make.”

Corporate view

Despite some initial hesitancy about the direction money fund regulation in Europe was heading, corporates seem to be satisfied with the new rules.

Alex Fiott, Head of Front Office, Treasury at AstraZeneca recently told Treasury Today that “the proposed European MMF Reforms appear a good balance between the regulators’ desire to highlight the inherent risks of an MMF while not forcing all non-government funds to automatically become VNAV Funds after a set date”.

Elsewhere, François Masquelier, Chairman of ATEL (the Association of Corporate Treasurers in Luxembourg) said that “in my view, the European solution, with a new category of funds (ie LVNAV), was a good and acceptable compromise to match recommendations from G20 and expectations from fund managers.”

A moving feast

Now that corporates are getting more detail about what funds they will be able to invest in going forward, the prevailing advice is for corporates to begin understanding what the changes will mean to your business and then begin making adjustments accordingly.

“Corporates should engage with their fund providers to understand and evaluate their options,” concludes Fuell. “Next they should review all their internal investment policies and ensure that these carry sufficient flexibility to cover all options a client may wish to take advantage of. Finally, they should review if any reporting or operational processes need to change.”