In March and April 2020, money market fund assets leapt 16.17% and 12.13% month-on-month as the stock market plummeted, and even though there hasn't been double-digit growth since, total assets have continued to climb. Between June and December 2023, the total assets grew 8.39%. Over the past five years, total assets grew to $5.89 trillion as of Dec. 29, from $3.6 trillion on Dec. 31, 2019.
Money market funds are currently yielding "very nicely" at 5.5%, said Philippe Billot, head of money markets at Pictet Asset Management, in an interview in Singapore. "So it's very competitive vs. deposits. And on top of liquidity, also in terms of risk management, money market funds are relatively sophisticated instruments," he said.
Given the uncertainties on inflation, interest rates will be higher than they used to be and yields are not likely to return to the levels investors saw five to seven years ago, he said. "Interest rates were almost zero in U.S. dollars and negative in European currencies and I'm not sure central banks were happy with (that) situation," he added.
At Pictet AM, which managed 230 billion Swiss francs ($251.7 billion) in assets as of Sept. 30, money market funds are diversified and assessed for credit and liquidity risk.
The fund manager also actively manages its duration. Over the past two years, Pictet AM has kept a low duration positioning in its U.S. dollar money market portfolio, with about $10 billion of the $57 billion under management in money markets having a duration of less than 10 days.
The duration has been increased now to 48 days and can go up to 60 days, "which is overall not a lot," Billot admitted. "But when you manage $60 billion it can be sensitive – every basis point of a basis point (matters). We live in a very small world in money markets but with huge amounts."
The total net assets of money market funds stood at $5.96 trillion as of Jan. 17, of which $3.63 trillion came from institutional investors, according to data by the Investment Company Institute.
The team has seen its AUM grow by about $20 billion over the past two years, from a variety of investors including institutional, wealth management and distributors.
Institutional investors have also been motivated by the need to diversify risks after the banking troubles of last year. "The Credit Suisse situation (was) something that was not really in the cards two or three years ago because regulation was supposed to solve all the problems. And then of course, institutional investors were really confident in the capacity of their custodian to keep their level of confidence of safety, but that has not been the case," he said.
In June, UBS completed its acquisition of Credit Suisse after the latter announced a 7.3 billion Swiss francs net loss for 2022 — its largest loss since 2008 — which sparked a bank run that left the bank in crisis.
Institutional investors have found that they need a policy for cash investments, he added. They need to know if their cash is well placed if it stays uninvested with the custodian, and where to invest it if they want to invest proactively, he said.