Optimizing Money Market Fund investment processes with your treasury management system

In the fast-paced world of corporate finance, the ability to manage liquidity efficiently is paramount. One of the most effective tools for managing short-term cash needs is investing in Money Market Funds (MMFs). MMFs offer diversification of exposure and an attractive balance between liquidity, safety, and yield. This combination makes them an ideal investment for many corporate treasuries. With MMFs being so popular with corporate treasuries, great strides have been made to ease access, simplify the investment decision-making process, automate operations, and enable seamless investment in these instruments.

Understanding the operational side of investing and holding shares in an MMF is important to set up your processes efficiently. Most Treasury teams use a treasury management system (TMS) to make cash investment decisions and to track investment positions and they use other systems/relationships to manage and trade Money Market Funds.

ION and Goldman Sachs Mosaic have partnered and applied modern technology to create a consolidated solution that allows for the entire MMF investment process to be managed from a single platform. This simplifies the investment process, eliminates the need for manual entry across multiple systems, reduces the risk of errors, and ensures that transactions are processed efficiently. With a single solution, treasury teams can access funds, simplify decisions, execute trades, reconcile accounts, and generate accounting, expected payments/receipts, and reports without switching between different software or platforms. This streamlining of operations makes MMFs an even more attractive investment vehicle.

Optimizing the investment decision

The ease of converting MMF investments into cash allows corporate treasuries to optimize the return on excess cash balances, and access the cash when required. If the cash position is managed in the TMS, it will calculate the excess cash available to invest. With a consolidated cash and MMF investment solution, placing the investment order from the cash position is simple. It also unlocks further automation in treasury operations.

Optimizing the investment decision requires access to real-time data that is commonly held in multiple different systems. This data often includes:

• Account balances that are often easy to determine, but maximizing the cash available for investment to achieve the best returns can be more complicated! The process may involve pooling multiple bank account balances and/or considering high confidence projected cash flows expected before settlement is due, and likely retaining some cash uninvested as a float/contingency for any unexpected cash demands.
• The current values invested in MMFs, including exposures to individual funds and total exposures by currency, fund manager, and entity.
• Fund yields, durations, liquidity ratios, and other factors that may change regularly and may affect an investments risk and return.
• The MMF investment policy which will typically contain exposure limits, fund category and analytics-related policies, and policies to spread investments across multiple funds and fund managers.

In an ideal world, MMF trading decisions will be made with all the above data available in real time on a single dashboard. The user will be able to request trades for multiple funds from multiple fund managers in one instruction directly from that dashboard, and expect to receive an instant confirmation that the trade instruction has been validated and accepted.

Streamlining the back office

Many MMF trades require same-day settlement, and the time between trade confirmation and settlement required can be short, particularly for some variable NAV funds. Best practice is either to have a pre-arranged facility for the broker to drawdown from a given account, or for the trade confirmation to generate payment instructions automatically and instantly using pre-defined standard settlement instructions (SSI) for the given fund and entity, and for those payment instructions to be released efficiently.

Payment instructions will often require approval before they can be released. So, it is important that approvers are immediately notified of any payments requiring their approval, and that the approvers can verify and approve the payments quickly wherever they are with any device they have to hand. This minimizes the risk of late settlement which might incur charges, or the broker cancelling the trade instructions and cash remaining uninvested.

Maintaining accurate accruals and accounting in a TMS requires factors to be updated daily. Automating the feed of these factors daily into the TMS can therefore save manual effort.

Conclusion

MMFs are an ideal investment for many corporate treasuries. The availability in a TMS of all the data required to help optimize the investment decision on a single dashboard, and the streamlining of operations, provides Treasury teams with the tools they need to optimize their MMF investment processes and free up time to focus on other priorities.