Cash & Liquidity Management

Making sense of your MMF options

Published: Sep 2018
J.P. Morgan Asset Management Thought for the Month – building stronger liquidity strategies – let's solve it.

September 2018

New European money market fund (MMF) regulations are opening up the MMF landscape to include some products that could leave unwary investors short on their security or liquidity requirements. Investment decisions may no longer be as obvious as they once were.

Short-term or standard?

The new regulations provide two categories of money market funds: short-term MMFs and standard MMFs. The short-term MMF is still the fund that most corporate treasurers have in mind when investing their operating cash. These funds have a Weighted Average Maturity (WAM) of 60 days or less, providing a high level of short-term liquidity and security.

However, treasurers also have the choice to invest in less liquid longer-dated standard MMFs, which can hold instruments out to two years and have a WAM of up to six months. The proportion of the standard MMF portfolio that matures within one day and one week may be significantly lower than a treasury manager expects.

CNAV, LVNAV or VNAV?

Under the new regulations, the traditional Constant Net Asset Value (CNAV) fund will be replaced by Low Volatility Net Asset Value (LVNAV), Variable Net Asset Value (VNAV), and public debt Constant Net Asset Value options.

These new categories can be confusing. For example, LVNAV and public debt CNAV are short-term MMFs only, but VNAVs offer short-term or standard options. It’s important therefore to understand the new acronyms and regulatory jargon if you want to avoid investing in a fund that unexpectedly adds risk.

Treasurers therefore need to have a clear understanding of their own investment needs, and they also need to look closely under the hood of every fund they are thinking of investing in to ensure it meets their needs. It’s not an issue of right or wrong, it’s simply one of being aware of what the underlying investments are and what the funds add to your cash strategy.

A helping hand

To help, we’ve produced a handy table to provide a quick at-a-glance reference of the main differences between the MMF categories. An awareness of the risks that the new regulatory classifications can present – or rather, the risks that confusing the new terms can create – should also lead to more attentive reading of the fund manager prospectuses.

Short-term MMF vs standard MMF
Short-term MMF Standard MMF
Public debt CNAV LVNAV VNAV VNAV
Permitted investments Government exposure Government or credit exposure Government or credit exposure Government or credit exposure
Max WAM 60 days 60 days 60 days 6 months
Max WAL 120 days 120 days 120 days 12 months
Max maturity 397 days 397 days 397 days 2 years, with 397 days reset
Daily liquid assets 10% 10% 7.5% 7.5%
Weekly liquid assets 30% 30% 15% 15%

Which product is deemed most suitable will depend on a number of variables such as investment objectives, business goals and the cash flow cycles to which a business is subject. However, having the flexibility to be able to respond to liquidity requirements, and being able (and confident) at an investment policy level to invest in any of the new options, may create opportunities to optimise corporate cash.

To find out more, please visit www.jpmgloballiquidity.com or you can contact us at any time with your questions at jpm_global_liquidity@jpmorgan.com

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