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Money Market Funds Get More Automated, Pandemic Highlights Virtues

Tom Burroughes, Group Editor , 6 August 2020


Money market funds are an important part of the financial sector, if not a particularly exciting one. This area hasn't, until recently, been particularly highly automated. A firm that provides part of the "plumbing" for the funds world spoke recently about what it is seeing in this space.

The global pandemic is accelerating digital technology and the money market funds space is no exception, with demand for cash-like investments gaining more prominence as equity markets become more volatile.

At the end of May, JP Morgan Asset Management partnered with funds network organisation Calastone, to automate the asset manager’s money market funds business.

Ed Lopez, chief revenue officer at Calastone, told this publication in a recent call, that the need for automation and increased efficiency is only going to increase

“Automation and speed in this market has greatly increased and a lot of that is down to Calastone,” Lopez said. COVID has greatly accelerated the shift towards automation – along with so many other parts of financial services," he said. “We are about taking the manual friction out of the industry.”

As reported in late May, JP Morgan AM said that initially it would use Calastone to enhance its entire settlements process, starting with its Morgan Money offering. Calastone digitalises the investment and reporting process for money market portals, fund providers and investors. 

A business such as Calastone has a front-row seat seeing what investors are doing with their money, because its network processes the fund-buying and selling flows that form part of the financial “plumbing” of the global funds market. Lopez said there have been inflows into money market funds from investors deciding to manage risk exposures. 

“Recent fund flows showed some profit-taking on equity funds and movement into cash,” Lopez said. 

Among other shifts, Lopez said that there has been growth, but also a shift within the MMF industry. In particular, recent volatile times have seen a big move to constant net asset value funds and away from prime/low volatility net asset value and volatile NAV funds. (In the US, LVNAV funds are called prime funds. Such funds hold government securities that are low-risk, and can hold short-term instruments issued by corporations, such as certificates of deposit. 

The money markets funds sector has been relatively slow to embrace automation, Lopez said, and his business has been pushing into the space. 

However, the macro-economic environment is not friendly to money market funds in certain ways. Yields on money market funds have been squeezed by central banks’ rate cuts. Recently, firms such as Fidelity and Vanguard have started to waive fees on these funds because, without doing so, returns could drop to zero. In March, the US Federal Reserve cut the target range for federal funds to a corridor between 0.00 per cent and 0.25 per cent. 

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