Introduction to money market funds

Money Market Funds (MMFs) are a cash management solution offering diversification, liquidity and operational ease.

Money Market Funds are structured in mutual/pooled funds which invest in short term money market instruments. These funds allow investors to participate in a more diverse and high-quality portfolio than if they were to invest independently due to the economy of scale a pooled product offers.

3 core principles of MMFs

Low volatility of capital
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MMFs blend highly rated short-term securities with longer dated securities (up to 13 months in short term MMFs). While seeking to achieve potential yield, MMFs aim to hold sufficient short-term securities, keeping the funds liquid to meet investor redemptions.

The ‘blend’ of instruments and duration exposures are determined by the team of portfolio managers and market specialists’ views on interest rates and market fundamentals. When markets are highly stressed, the portfolios are adjusted to hold more liquidity in a shorter dated approach.

What are we seeing?

The following trends are affecting investors’ approach to managing cash:

  • Banking regulations resulting in short term liquidity pressures
  • Strategic cash segmentation in low / negative rate environments
  • Resource and cost pressures increasing demand for integrated technology solutions
  • Investment policy consideration of Environmental, Social and Governance factors

As a result, we are seeing more investors utilising money market funds as an efficient way to manage their liquidity needs. If you would like to learn more about our strategies, please contact us here.