Short-term money market funds continue to be a popular liquidity management option for many organisations. They offer same-day liquidity, diversification, and access to specialist managed portfolios, making them particularly useful for the management of operational and surplus cash.
For sterling investors, Low Volatility Net Asset Value funds (widely referred to as LVNAV funds) continue to be the favoured structure in the UK and Europe more broadly. LVNAV funds resulted from the Constant Net Asset Value model (commonly referred to as CNAV) following changes to money market fund regulation, retaining many of the practical features that treasurers valued while introducing tighter rules around valuation, liquidity and risk management.
For many treasury teams, MMF reviews have not typically been prioritised, and familiarity has led to arrangements being left unchanged and unreviewed for a long time, many years in many instances.
Arlingclose recently polled attendees during one of our weekly client Trending Treasury webcasts, and nearly two-thirds (63%) of respondents indicated that their approach to assessing MMF value could be strengthened. That is perhaps unsurprising. Treasury teams are typically light on resources, busy managing many different aspects of their treasury function. If a fund remains secure, liquid and operationally straightforward, it can be easy to assume there is little reason to revisit it. That is where LiquidityEdge can help.
Since 2024, we have been working with treasurers, cash managers and finance teams across the public sector and wider corporate market to review existing money market fund arrangements. One of the most consistent trends is that many investors have not had the time, resources or market information to establish whether their funds, fund management fees and their respective net yields remain competitive and ultimately deliver value. That is reflected in our poll, where only one in five respondents said they knew how much of their MMF return could be reduced by fund management fees, platform charges, rebate arrangements or access to a less competitive share class. More than three-quarters (77%) either did not know or were unsure.
Historically, fund managers have charged smaller investors more than larger institutions through different share classes. With trading technology speeding up and facilitating the day-to-day management and trading, swifter KYC processes and account opening documentation being digitised and signed digitally, the MMF market has become more competitive than it has been in previous years, which we believe makes a MMF Health Check more valuable and important.
Our poll also found that more than half (55%) of respondents review whether their MMF options remain competitive annually or less frequently, while a further 18% were unsure how often such a review takes place.
On a gross basis, many sterling LVNAV funds tend to perform within around 20 basis points of one another. Once fees are applied, the difference in net return available to investors can become considerably wider.
While a few basis points may not immediately sound significant, they soon add up. On an average balance of £50 million, an improvement of just 5 to 10 basis points over 12 months could increase investment income by between £25,000 and £50,000.
Of course, selecting a money market fund should never simply be about chasing the highest return. Security, liquidity, diversification, operational resilience and the wider risk framework should always come first. The important question is whether, having satisfied those requirements, the organisation is receiving good value for the cash it is investing.
Independence and transparency are central to the LiquidityEdge approach. We do not receive fees or rebates from asset managers, so our analysis and recommendations are not influenced by commercial relationships with fund providers. This is important in a market where distribution and rebate arrangements exist between fund managers, trading portals and other participants.
Our role is straightforward. We help clients understand the options available, assess the relative merits of different funds and share classes, and seek the best possible outcome while remaining focused on security, liquidity and risk.
The results for clients to date have been significant.
If you have not reviewed your money market funds recently, or are considering investing in them for the first time, please get in touch with jwebb@arlingclose.com to arrange a free 20-minute discovery call to see whether LiquidityEdge could help.
