New ICD offering gives investors a clearer view into their money market fund holdings.
While at the recent Eurofinance conference in Rome, International Treasurer was able to spend some time with Ed Baldry, CEO of ICD Europe as well as Tory Hazard, the company’s COO. The two educated us on a few things about ICD that we were not aware of and which make ICD’s product offering much more than your run-of –the-mill MMF portal where companies shop for the best rate.
A lot has changed in the MMF world in the past few years, brought on by experiences of the broken buck. To that end ICD is working to stay in front of that change. Most notably is its new “Transparency Plus” feature. In the depths of the financial crisis, money fund investors learned (most the hard way) that triple-A ratings were not as reliable as everyone believed. Many funds were found to be holding assets that were outside company investment guidelines or had been temporarily prohibited by the investor due to new risks. The combined challenges of timely access to reporting that listed a fund’s holdings, and assigning resources to review and analyze these holdings, left many investors with no option but to abandon prime funds in favor of government funds.
That hurt. So when investors vote with their feet, investment firms listen closely. ICD, representing its large number of MMF investors, relayed its concerns to the fund firms and garnered their support to provide timely holdings data in a format that ICD could harmonize across all their fund companies. In this way, the company is now able to provide data to their users in an easy to understand and actionable format. “Client awareness is driving funds to respond to this request,” Mr. Hazard said. For example, clients are inquiring about European debt holdings and acting on what they learn. Consequently, ICD states that 80 percent of its funds report holdings weekly with some reporting less frequently and some reporting daily.
Hard lessons.
ICD actually (and unfortunately) found itself in the thick of the financial crisis when in the spring of 2008 it was using Bear Stearns as its broker clearing agent. Of course, at that time Bear Stearns had to be rescued by J.P. Morgan Chase (with an assist from the Fed) in order to avoid bankruptcy. While the rescue of Bear kept operations moving, ICD needed to respond to the sensitivities of its users. “Our clients were telling us that they couldn’t ‘have reports coming to my office with the name Bear Stearns on them,’” Mr. Baldry said. This forced ICD to move this activity to a custody bank model.
Earlier this year, in response to the widespread failure of the rating agencies leading up to the crisis, ICD and treasury consulting firm Treasury Strategies, teamed up to develop a set of recommended policy guidelines for a new approach to money market investing. Following are the highlights of that work:
- Maximum investment in any single money market mutual fund as a percentage of total investment in money market mutual funds should be in the range of 10 – 35 percent.
- Maximum investment in any single money market mutual fund as a notional amount. This will vary based on the portfolio size of the company.
- Maximum investment in a fund’s total assets under management should not exceed 5 percent.
- Maximum investment in any single fund family as a percentage of total investment in money market mutual funds should be in a range of 50 percent to 100 percent.
- Maximum investment in any single fund holding issuer as a percentage of total investment in money market mutual funds should be in a range of 3 percent – 5 percent.
- Minimum investment in rated money market mutual funds should be 60 – 100 percent.
- Maximum investment in any single country as a percentage of total investment in money market mutual funds should be in a range of 0 – 50 percent.
Mr. Hazard noted that the issue around the Reserve Fund breaking the buck was due to the higher yields it was offering because of riskier assets it was including in its funds. Because people relied on ratings and the relative safety of prime funds, no one was looking closely under the covers at the individual holdings. “We firmly believe that if transparency and client awareness had been what it is today, the Reserve fund would have changed its behavior because clients would not have been buying their funds,” he said.