UK – The assets managed in institutional money market funds could reach $1trn (€827bn) in five years’ time, says Institutional Money Market Funds Association chairman Donald Aiken.
In the past five years assets under management with association members funds have grown from $50bn to $260bn.
The association is currently focusing on lobbying government and regulators and raising awareness of money market funds in Europe, Aiken said at a dinner following the IMMFA’s annual meeting.
One of the most important pieces of lobbying had been on the EU definition of eligible assets and of the role of money market instruments.
If IMMFA had not successfully lobbied the Committee of European Securities Regulators (CESR), the unintended consequence would have been that money markets funds would have had to close, said Aiken. He’s also head of cash services at Scottish Widows Investment Partnership in Edinburgh.
He referred to the IMMFA’s success in Europe and the UK. He mentioned the Financial Services Authority’s ‘look through’ treatment. This allows a bank in the UK investing in funds to treat these as if it had invested in the same underlying assets directly itself and to do this immediately ahead of the Basel II requirements in 2008.
He predicted it would only be a matter of time until banks and other financial institutions would “use mutual funds structures of various types as part of their armoury to improve balance sheet efficiency”.
Paul Sharma, head of policy at the FSA in London for banking, insurance and securities, said that the authority had accepted “the compelling logic” here.
For banks and investment banks the “big story” in regulation was Basle II, he said. The new set of market risk standards will come into effect in January 2007.
Banks would be looking at new ways of doing business as they looked at their risks in relation to capital requirements, he predicted.
Sharma also referred to the increased focus on liquidity risks for the non-life insurance sector.
He thought that the changes affecting the banking and insurance sectors might well impact the products of the association members.
Commenting, Mark Doman of institutional money market fund group AIM Global, said AAA rated money market funds could provide the liquidity and the yield that the banks and insurance companies will increasingly require.