Many treasurers will continue to use money market funds despite a regulatory change that makes funds with a constant net asset value (NAV) more expensive.
JP Morgan Asset Management found that 71% of 201 treasurers it surveyed would still use money market funds despite changes from Brussels that will require constant NAV, or CNAV, funds to hold a 3% capital buffer.
CNAV funds seek to maintain a price of €1 per share unlike variable NAV funds that fluctuate.
Money market funds have been caught up in regulatory action on shadow banking. However, Brussels recognised that many treasurers may stop using money market funds – worth some €1 triliion and representing 15% of the European fund industry – if CNAV funds were banned.
Treasurers who will stop, or reduce, usage of money market funds would reallocate assets to bank deposits or other assets that are less diversified and still have credit risk.
The respondents noted that two of the biggest barriers preventing companies from using floating NAV funds are the uncertainty of realised or unrealised gains or losses and the existing structure of their investment policies.
The survey of cash investors also found that close to a third of their cash assets are allocated to money market investments, the highest usage being in Europe, and that one in every five dollars is in separately managed accounts. The use of such a structure allows investors to define their own return, security and liquidity parameters.
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