Regulation is forcing the majority of European money market investors to re-think their strategies, research by JP Morgan Asset Management has discovered.
Stricter liquidity and redemption rules for money market funds are set to be implemented in late 2018 at the earliest by the European Union. This has led to 58% of such investors to consider altering their allocation policies.
This was the main finding of the asset manager’s Investment PeerView 2017 survey, which collected the views of treasurers, chief investment officers and other cash decision-makers globally.
JP Morgan Asset Management head of international liquidity sales Jim Fuell said: “The new regulations will prompt change, but it’s important to point out that they provide a level of optionality which will ultimately allow money market funds to continue to offer investors the advantages that they currently enjoy.”
Of those considering making a change, 43% put gating risk or fees as the most important factor driving their decisions.
Almost half (44%) of respondents said they needed more time or information before deciding on their preferred money market structure.
Fuell believes that low volatility NAV funds will be a likely choice for many money market investors, due to their similarity to constant NAV short-term money market funds, which are the current favourite.
According to the survey, 24% of respondents are considering increasing their exposure to floating NAV money market funds next year.
With 70% of respondents saying they can forecast cash flows out for a month or longer, Fuell is seeing treasurers becoming more strategic with their non-immediate cash in a continued low rate environment.
“With appropriate segmentation, liquidity investors can benefit from allocating a portion of their cash to a broader investible universe with greater corporate diversity, whilst maintaining a highly risk controlled environment,” he added.
