Cash managers report steady MMF demand

An annual survey of cash managers has reported that demand for money market funds (MMFs) remains steady against a backdrop of global uncertainty that names Brexit as one of the two biggest risks.

J.P. Morgan Asset Management’s 2019 Global Liquidity PeerView Survey, found MMFs remained the most permissible investment identified in the policies of 346 managers who took part – more than one-third of whom are based in Europe.

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The survey found 92% of investment policies detailed MMFs, followed by bank obligations at 62% and US Treasury bonds a nose behind at 60%.

According to recent MHCLG figures, UK local authorities currently hold around £9.1bn of investments in money market funds, accounting for roughly 21% of all local government treasury investments.

J.P. Morgan said that precisely three-quarters of cash managers said they had no intention of changing their stable net asset value MMFs for the coming year, based on the current outlook.

However, more than two-thirds (67%) identified the combination of rising US-China trade tensions and Brexit uncertainty as investment challenges for the coming 12 months.

Paula Stibbe, global head of liquidity sales at J.P. Morgan Asset Management, said slowing growth and declining interest-rate returns could be added to those risks.

“The changing global economic environment presents investors with many new challenges,” she said.

 “This year’s PeerView results suggest that in this environment, demand for money market funds remains strong, and investors with short-term fixed income portfolios are increasingly looking at areas such as ESG screening and treasury management systems when evaluating their cash investment strategy.”

The survey found 19% of investors using ESG – environmental, social and governance – criteria  to screen investments, with a further 25% describing themselves as “likely” to start before 2022.

It also flagged the increasing adoption of treasury management systems, with 61% of respondents describing themselves as users. J.P. Morgan said survey respondents in Europe and the Middle East Area were the least likely to develop in-house treasury management systems (11%) and Asia Pacific respondents the most (43%).

Breaking down the responses for key regional concerns, the survey found avoiding negative interest rates in euro and sterling investments was a focus area for managers in Europe, with 39% of managers identifying it as a problem area.

It said term deposits were the most popular solution, identified by 62% of managers. Ultra-short duration bond funds were the second-placed choice (23%).

In the Asia Pacific region, fears over the escalation potential for the US-China trade war were added to by anxiety over the outlook for rising credit and default risk by China, cited by 22% of respondents, and the impact of regulatory reform.

A region-by-region breakdown of J.P. Morgan Asset Management’s survey showed 153 responses came from the Americas, 116 from Europe and 77 from Asia Pacific nations.

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