Le Magazine du Trésorier - n°65 - 1er trimestre 2009 - (Page 13)

An X Ray of Money Market Fund Risks The financial crisis has demonstrated that credit risk was also an issue when investing in Money Market Funds. Investors can use quantitative methods to assess both interest and credit risks they face. 1. REDUCING THE INHERENT RISKS IN MONEY MARKET FUNDS When investing his surplus liquidity, the main objective sought by a corporate treasurer is to guarantee recovery of the principal sum – unfortunately no simple matter in the current market.A treasurer will have seen the limits of rating agencies. A triple “A” rating is an “extra” guarantee, but not enough for an investor.The guidelines set by the French market regulator “AMF” also seem insufficient to provide assurance about the quality of an investment. This problem does not therefore come down solely to the Anglo-Saxon classification “TreasuryStyle Money Market Funds (MMF)” versus “Investment Style MMF”. The idea behind the analysis conducted with the help of Alternative Advisers was to assess the inherent risk in each of a client’s portfolio funds, thus going beyond the simple analysis of accounting treatment alone, by relying on multi-factor analyses. (but real) extent, and the counterparty risks which – during a period of crisis such as the situation during autumn 2008 – can become enormous.We believe it would be helpful to study this second risk type as even if a rating agency specifically targets the credit risk, the score awarded does not prevent the inherent risk for the MMF. Fund pooling reduces the impact in the event that the risk arises, but rather than eliminating it, it conversely increases it. Investing in a fund means “outsourcing” its management to an independent professional (subcontractor) and diversifying the risks in order to reduce the potential impact. This method can thus be a helpful decision-making tool to complement the process of selecting a monetary fund. The analysis can be conducted regularly, on a random basis, to “scan” the investment portfolio. The consultant offers to provide global “top-down” classification reports on the MMF, in terms of risk quality. In the current economic climate and taking into account the prevailing volatility, such a tool could help support a company’s shortterm investment policy.After all, you can never be too careful when it comes to entrusting your money to others. 3. X-RAY ON MMF The current financial crisis has affected every sector of the financial management industry. In most cases, however, the movements in financial assets, although extreme, correspond to market shocks which have already happened before (even if we have to go quite far back in time). Traditional methods of risk measurement (analysed in a mean-variance context, for example) could have been used to discover and classify the risks in advance.The greater the risks taken ex ante (emerging shares, high-yield debt), the more painful the consequences today. Whatever the case, we can now see that we are currently experiencing a “reality check”, which takes the form of a bursting of bubbles. In contrast to the risk ladder, other private and institutional players seeking a risk-free investment have put their money into money market funds.Yet (and here lies the rub), the financial crisis has also affected the performance of some of these MMF, while the traditional risk measure- 2. RISKS LINKED TO A MONEY MARKET FUND A money market fund is exposed to two types of risk: the interest rate risk, which can fluctuate to a limited FOCUS 13

Table des matières de la publication Le Magazine du Trésorier - n°65 - 1er trimestre 2009

Couverture
EDITORIAL
FINANCIAL HIGHLIGHTS
INTERVIEW
FOCUS
FORUM OF ADVERTISERS
TREASURERS’ ASSOCIATIONS
NEWS

Le Magazine du Trésorier - n°65 - 1er trimestre 2009