Can you briefly present your business?
I am in charge of managing Groupama Asset Management's money market and very short-term bond funds which represents an outstanding amount of around €23 billion spread over 16 portfolios. Our management strategy is investment grade with high credit quality issuers and a maximum investment horizon of 3 years. At the same time, I represent the interests of Groupama AM's Monetary Management and those of our industry with the public authorities, directly or as a member of the French Asset Management Association (AFG). Finally, we have entrusted CACEIS with the custody of the open-ended funds.
What is your opinion on the Money Market Fund regulation and its impacts?
This regulation was created with a view to harmonising the management of money market funds across Europe. It goes further than the rules laid down by the ESMA in 2011 in the prudential approach that is imposed, particularly as regards research and fund governance, but also as regards transparency with imposed reporting, including stress tests. It also makes significant changes to the liquidity ratios required for each fund category (VNAV, CNAV, LVNAV).
At Groupama AM, we only manage VNAV (variable NAV) funds. The most significant impact of MMFR concerns the CNAV (constant NAV) funds, which are subject to more restrictive management rules with 99.5% of public debt on the assets side. For these funds, the main difficulty is keeping a constant NAV when the remuneration of the funds is negative. A share destruction mechanism has been put in place to respond to this, but most recently the European Commission has declared that this mechanism does not comply with the new regulations. The point therefore remains open.
For variable NAVs, the MMF regulation transforms what used to be good market practice into rules. For example: the liquidity imposed for overnight and one week, asset diversification obligations that will now apply to groups of issuers and no longer only to issuers (5-10-40 UCITS rule), ratios etc.. These are not major changes, at least for us. With MMFR, the monitoring is strengthened more than the management rules.
How did you prepare for the implementation of MMFR next July?
As far as the market place is concerned, an AFG working group in which I have been participating since 2014 has regular correspondence with the authorities.
In 2017, Groupama created a steering committee, (as is the case for each new piece of regulation), which brought together representatives from management, risk, reporting and development. The latter function is important in meeting a range of fund liability control obligations required by the MMFR. To this end, we rely on our sales representatives who are as close as possible to our clients and who therefore have a close relationship with our major investors. It is more difficult to understand the more granular ownership within distribution networks. We will probably need the help of our distributors, or even our custodian, to identify the details of our liabilities. We carry out work in this area with our distributors because stress test obligations are required depending on the type of client.
As far as research is concerned, it must now be independent of management, which is already the case at Groupama AM, as is the internal rating system for issuers. We have our own internal research structure. We have also set up and used stress testing for several years. We are therefore able to meet all the requirements and formats imposed by MMFR.
Our prospectuses will be updated by early 2019 for the existing portfolios. We are ready to implement the obligations imposed by this MMF regulation.