Marc Fleury and Sophie Dimopoulou (BNP Paribas Asset): Money Market Funds - A Reliable Anchor in Times of Volatility
​In an environment defined by market swings, geopolitical tension and economic uncertainty, treasurers are turning to solutions that prioritise capital preservation, liquidity and flexibility. Money Market Funds (MMFs) offer a compelling option: they combine stability with professional portfolio management, provide rapid access to cash, and can even support ESG objectives. As conditions shift, MMFs continue to play a vital role in helping treasurers navigate the unknown with confidence.
Why should I use Money Market funds in times of high volatility and uncertainty?
Money Market Funds are used for several reasons in uncertain times, the main reason being that they aim to preserve your principal investment, as they invest in high-quality, short-term instruments. Stability of capital – a core priority for treasurers – is particularly attractive especially in volatile markets. Most Money Market strategies are highly liquid and they offer same-day or next-day access to capital. This access to cash offers flexibility and is ideal for working capital needs, unexpected expenses and for when there is uncertainty about where to allocate longer term. Money Market Funds are also able to adjust quickly to fluctuating markets: yields can therefore rise faster, making them more attractive short term, and they offer stability when the outlook is unclear. Money market funds are governed by strict regulatory frameworks regarding for example credit quality, liquidity and diversification limits and this can reduce the risk of negative surprises or losses on short term portfolios.
Why should I use Money Market funds vis a vis Term Deposits?
The two key excess cash tools are Term Deposits and Money Market Funds, and they both have their advantages. Term deposits offer fixed interest rates for the duration of the term. Exposure is concentrated in a single bank or institution and they are often core to the clients’ overall banking relationships. Money Markets funds are also key in a Treasurer’s tool-kit. They enable Treasurers to focus on other matters and to delegate how their cash is invested to specialised portfolio managers. Money Market Funds invest across a wide range of issuers reducing counterparty concentration risk. Money Market funds can also provide an ESG friendly structure if they are classified Article 8 under the Sustainable Finance Disclosure Regulation, whereas “green’’ term deposits are still scarce and difficult to use for operational purposes because of their constraints. These Article 8 Money Market funds can allow treasurers to align cash holdings with corporate sustainability goals.
Marc Fleury
"Yields can therefore rise faster, making [money market funds] more attractive in the short term, and they offer stability when the outlook is unclear."
Is client behaviour changing depending on market conditions?
Clients’ behaviour can evolve significantly based on market conditions, particularly in response to interest rate cycles, credit events, liquidity squeezes and geopolitical shocks. These shifts are often marked by changes in clients’ cash allocations, investment horizons and risk appetites. For example, during the Global Financial Crisis in 2008 and during the Covid pandemic in 2020 the clients’ focus shifted from yield enhancement to capital preservation and to high-quality, liquid instruments that offered immediate access to cash.On the other hand, during the era of ultra-low rates in Europe (between 2015 and 2021), clients looked for enhanced cash solutions like short-term bond funds. During the US Regional Banks and the Credit Suisse crises in 2023, there was a reassessment of what direct counterparty risk meant and we saw an increased preference for diversified vehicles like Money Market Funds from clients When allocating cash to Money Market Funds, investors make the decision to delegate to seasoned Portfolio Managers who follow the markets very closely and who can optimise the Money Market Funds’ portfolios according to market conditions.
Sophie Dimopoulou