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Money Market Funds struggle to offer their investors the safety and liquidity, and returns they requ

The brochure on the Money Market Expo (MMX) in the USA in March 2012 opened with a neat summary of the industry's position:

  • the money-market mutual fund industry continues to adapt to an evolving regulatory structure and is coping with a low-yield environment that sees no early end
  • MMX 2012, the premier money-fund industry conference, is all about strategies to meet those challenges and survive and thrive while continuing to offer investors the safety and liquidity they require.

Twelve months on, the position in Europe is basically the same as it was in the US in March 2011. The money market funds exhibiting at the Association of Corporate Treasurers Annual conference in Liverpool in April were unanimous in what is happening:

  • money market funds products are pretty boring as all isseuers are waiting for new legislation and what they will have to comply with after the European Commission rules on the “shadow banking” system
  • corporate treasurers are staying very liquid, and looking for security and diversification for their cash, and at the same time better yield
  • terms have shortened, often to next week and maximum six months
  • search for better yields is intensifying, but as one fund manager put it: will corporates accept the greater risk? are they prepared to accept funds that include BBB paper as that is all that is available?

Would you buy a money market fund that includes BBB commercial paper? Maybe AAA funds are going to be a thing of the past?

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