Introduction

This Best Practice Handbook is designed to bring investors fully up-to-date with money market funds – both in terms of the market for the product and the market environment in which the product is operating. It is essential reading for anyone investing in these funds, which are facing many challenges.

This Handbook also provides a useful brief on the practicalities of using money funds and highlights the efficiencies that they should continue to offer in the daily management of corporate liquidity.

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Cracks have appeared

It is five years since the cracks started to appear in the banking and financial markets and, despite some earlier signs of improvement, market conditions have deteriorated further since the last edition of this Handbook was published in 2010.

Treasurers are facing enormous challenges. The maintenance of liquidity and investment of treasury surpluses in a secure yet profitable manner has become a major occupation for many.

Bank failures and credit weakness have restricted investment lists. Regulatory pressures and deleveraging have reduced banks’ appetite for short-term cash and record levels of market liquidity have reduced the rates paid to (and through) par.

Challenging times

For money market funds, the challenge is the same except that they have the advantages of a permanent presence in the short-term cash markets, specialist credit and market resources, as well as economies of scale. Recognising these advantages, and encouraged by tighter operating parameters introduced in 2010 by regulators and others to reinforce the integrity of the money funds, many treasurers have increased their positions with the funds.

Uncertainties remain, however, and the outlook for constant NAV money market funds is mixed. Much will depend upon the direction taken by the regulators both in the US and globally and upon fund providers and, crucially, investors’ responses to changes in regulation and to persistent market weakness.

Whatever the outcome, pooled short-term cash management will likely continue to feature in the money markets.

Content advisor

We should like to record our thanks to Alan McRae of Cross-Markets Limited for his assistance in compiling the Handbook and in providing commentary throughout.

Editorial independence

Full responsibility for the editorial content of the Handbook rests with Treasury Today.