Trésorier/Treasurer magazine - N°99 - Nov/Dec/Jan 2018 - 29

FORUM

SSGA HAD €2.61 TRILLION IN ASSETS UNDER
MANAGEMENT ON 30TH JUNE 2017.
WITH OVER 30 YEARS OF CASH MANAGEMENT
EXPERIENCE IT OVERSEES APPROXIMATELY €355BN
IN CASH AND SHORT-TERM STRATEGIES.

Now is the time to consider

DAVID CAROL

which money fund options will

SALES DIRECTOR - GLOBAL CASH

best suit your needs, and it is
worth consulting with your
cash managers to tease out any

STATE STREET GLOBAL ADVISORS

potential obstacles to a smooth

Low Volatility NAV (LVNAV)
Prime funds account for the greatest share of the EU institutional market, and it is widely expected the vast majority
will convert into LVNAV funds. This segment most closely resembles pre-reform constant NAV prime funds. LVNAV funds
will trade with a share price that will remain stable in the vast
majority of circumstances, but will convert to a variable NAV
should the mark-to-market valuation gap exceed 20 basis
points. Liquidity-based fees or redemption gates will be imposed if weekly liquidity drops below 10%. Investors seeking
a prime fund option that aims to maintain a constant NAV will
likely favour LVNAV funds.
In reality, the industry broadly agrees that liquidity-based
gates/fees will rarely be deployed, but they would act as
a positive mechanism during times of market stress when
liquidity challenges could emerge. As things currently stand,
UCITS funds, and indeed most AAA-rated money funds, allow
for the imposition of gates so this should not be a major factor
for most investors. Under normal market conditions, we expect investors will see little difference between LVNAV funds
and pre-reform constant NAV funds.

For core and strategic cash, it is likely that many investors
will consider Standard VNAV funds. The Standard VNAV could
neatly complement the LVNAV option in optimising overall
cash management for investors prepared to give up a little
liquidity by placing funds into a longer duration product to
enhance yield prospects.

Start preparations
The EU has set the clock running. Now is the time to consider
which money fund options will best suit your needs, and it is
worth consulting with your cash managers to tease out any
potential obstacles to a smooth transition at as early a stage
as possible.

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Short-Term VNAV and Standard VNAV
Both VNAV options will maintain variable NAVs per share, with
no liquidity-based fees or redemption gates specified by the
money market reforms. As already noted, redemption gates
are allowed under the UCITS directive.
Short-Term VNAVs offer an alternative to LVNAV, along with
the potential for slightly higher returns from less conservative
liquidity and diversification requirements. It remains to be
seen, however, whether this minimal spread will sufficiently
compensate most investors for potential NAV fluctuations in
comparison to LVNAV.

We are still in an era of ultra-low short-term rates, which
means the trade-off for the 'safety' of high- quality government debt is low yields, or lower negative yields in the case of
the EU where there is a shortage of suitable short-duration
government debt. For investors seeking higher return potential, consideration will likely be given to other categories.

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possible.

- NOV / DEC /

JAN 2018

transition at as early a stage as

Table des matières de la publication Trésorier/Treasurer magazine - N°99 - Nov/Dec/Jan 2018