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Nathalie Coffre (Amundi): A new approach to cash management

Nathalie Coffre, head of short-term fund solutions management, Amundi

Ultra-low interest rates that have turned money market fund returns negative have prompted institutions and corporates to consider alternatives such as bond-based enhanced treasury solutions, says Nathalie Coffre, head of short-term fund solutions management at Amundi.


What factors have lie behind the development of enhanced treasury solutions?


Investors who in the past parked mainly in pure money market funds have been looking for alternative solutions capable of delivering 0% or above since the funds’ returns turned negative. This approach requires visibility on cash needs, since even in the MMF sector, there is no such thing as a free lunch – in order to obtain higher returns, clients have to accept higher volatility or higher risk. That’s why we believe that splitting the cash bucket into three categories can provide clients with the best answer to their particular needs. There’s cash to support daily operations, with an investment horizon of less than three months; operating cash allocated to M&A activity or to provide a backstop for daily cash, with an investment horizon of between three months and a year; and strategic cash for long-term funding, a very stable and often permanent bucket. We recommend different solutions for the three buckets: daily cash should be invested in pure MMFs, while for operating cash, asset managers can provide clients with ultra-short-term bond funds, so-called enhanced treasury solutions. The strategic cash bucket may be invested in absolute return funds or short-dated benchmark bond funds.


“One notable change is that liquidity solutions and investments has become more attractive as an asset class for institutional and corporate investors.”

What are major changes in liquidity management have taken place recently?


Negative MMF returns have prompted growing interest among clients for enhanced treasury solution. In 2012, pure MMFs held €595 billion in assets, compared with €18 billion for bond-enhanced solutions, while by March 2018 MMF assets had fallen 6.5% to €556 billion, while bond solution assets had grown to €45 billion. These figures indicate that clients worldwide continue to hold a substantial volume of assets in MMFs, even if returns are negative. This could be partly due to the fact that banks are charging some clients for balances in cash accounts. We also see that investors are extending the maturity of a small portion of their investments, accepting more volatility to achieve higher return. And since the beginning of this year we have noticed that in response to increasing volatility in financial markets, clients are taking profits and reducing their global risk exposure while investing in liquidity solutions.


What other significant developments are taking place in the treasury field?


One notable change is that liquidity solutions and investments has become more attractive as an asset class for institutional and corporate investors, having been largely overlooked in the past. Meanwhile, the EU’s European Money Market Fund Regulation will become applicable to existing MMFs from January 21, 2019: the legislation, prompted by the 2008 liquidity crisis, will impact variable NAV funds only marginally, but constant NAV MMFs, apart from those investing in public debt, are abolished and are replaced by low volatility NAV funds. In addition, central banks worldwide are working on reform of money market interest rate benchmarks, due by January 2020, in response to the Euribor rate manipulation scandal. The proposed replacement of the euro overnight index average (EONIA) by the euro short-term rate (ESTER) under the EU Benchmarks Regulation will have an enormous impact.