JPMorgan Asset Management: An A+ for JPMorgan - Kathleen Hughes

In light of the current market volatility, what are the most secure liquidity management options for FDs and their treasurers? Kathleen Hughes, managing director of JPMorgan Asset Management (JPMAM) and head of global liquidity for EMEA, offers her insight on qualifying money market funds (QMMFs) and why JPMAM’s funds are going from strength to strength.

We’ve seen a reduction of risk by FDs and corporate treasurers, benefiting QMMFs (AAA-rated, stable NAV money market funds), short-term bank deposits and government securities. According to iMoneyNet, JPMAM’s AAA-rated international liquidity funds increased assets under management (AUM) by approximately 90% to almost $165 billion over the last ten months.

But do QMMFs differ from the ‘enhanced cash’ products prevalent in continental Europe?

QMMFs

‘Money market fund’ is widely used in Europe to describe everything from stable NAV funds to enhanced yield, short-term bond and total return-style money funds. QMMFs are the most conservative, and the events of last summer highlighted their benefits. Their main objectives, in order of importance, are to provide daily liquidity, highest levels of security and a competitive yield. AAA-rated portfolios must be extremely high quality (at least 50% A1+/P1) and have a short weighted average maturity (WAM) of less than 60 days.

What it takes to be AAA rated

Rating agencies monitor portfolio holdings and mark-to-market valuations. Funds rated AAA by the big three agencies must be consistent in their management, credit quality, duration limits, concentration limits and other factors. The highest market risk or volatility ratings are reserved for stable NAV funds only.

QMMFs can be distinguished by key characteristics. They should have well resourced, proven proprietary credit research teams and fund managers should perform credit analysis and devise internal credit ratings for each security they purchase. The portfolio holdings and client base of larger funds are better diversified, and can accommodate larger flows without disrupting performance or impacting other shareholders.

The sponsor’s commitment to liquidity funds is also important. Long-running businesses, well-resourced teams and liquidity funds being a large component of their overall asset management business are all signs of well-handled liquidity funds.

Why should FDs and treasurers be aware of QMMF composition?

Portfolio managers can buy various securities including simple bank time deposits and more complicated asset-backed commercial paper. FDs and treasurers should be comfortable that managers have the resources to support credit analysis of money market instruments and that they’re transparent and willing to share their portfolio holdings reports with clients.

In view of this, JPMAM’s portfolio holdings reports are available to all clients, with hosted portfolio management roundtables for clients. JPMAM’s senior portfolio managers and asset-backed commercial paper analysts are also available to answer questions and assist in educating clients. This level of transparency and education has been extremely well-received by clients looking to invest their cash.

JPMAM’s QMMFs

JPMAM is the leading international QMMF provider, with almost $165 billion in AUM across currencies including USD, EUR, GBP, RMB, JPY and SGD. According to iMoneyNet, they have the largest USD ($77 billion) and EUR (€18 billion) funds and a total market share of 23%.

They are also the market leader in government-only liquidity funds, with the largest USD treasury and Euro government liquidity funds.

Funds in demand

JPMAM’s government-only liquidity funds have grown most in percentage terms. Clients were willing to give up yield during Q1 2008 to limit their exposure to just the US government.

These funds have since fallen from their highs as some people rotated back into their flagship liquidity funds, which is a sign that investors are less nervous than several months ago. In terms of currency, JPMAM is seeing strong demand across the board for USD, EUR and GBP.