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Money markets plan for post-pandemic resilience

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The turmoil of Covid-19 has starkly questioned how automation can help money markets build resiliency against the most massive disruption.

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As the coronavirus pandemic wreaked havoc in financial markets around the world, the normally sleepy world of money market funds was roaring into life.

While cash poured into government funds in March, prime funds saw a stampede for the exits. In the fortnight between March 11 and March 25, investors yanked $139 billion from prime money market funds, the largest two-week spell of outflows since September 2016, according to data from the Investment Company Institute.

Fund providers were suddenly deluged with enquiries and demands at a time when their capacity to deal with them was stretched.

“Normally it’s the type of product nobody pays much attention to, and if there is a crisis it’s usually a single name-driven event, but this was basically everybody phoning in,” says David Callahan, head of money markets at fund provider Lombard Odier Investment Managers in Geneva, Switzerland. “That was a level of intensity we were just not prepared for.”

As governments across Europe went into lockdown, fund operations were tested to their very limits – in part because many business continuity plans failed to anticipate the severity of such a crisis.

One spokesperson at a UK-based investment platform reflects that: “If you look at the most common disaster recovery plans of all big businesses – particularly those that are registered with the stock exchange – we have fantastically comprehensive plans, including how we can relocate our operations to different disaster recovery sites very quickly. But losing all of our sites, and potentially having to have all of our people working from home, is just unprecedented.”

Disrupted by distance

For Callahan in Geneva, he was one of the lucky ones – he was still able to go into the office every day – but the co-manager of his fund had a longer commute and was forced to stay at home, disrupting their usual workflow.

“One of the challenges of remote working is that normally my colleague and I are sitting next to each other and we talk; now we’re having to type in IB Chat all day, and it takes a lot of time,” Callahan says. “We have to make sure we’re on the same page so that we don’t make an operational or strategic mistake, so that’s a bit of a handicap in terms of efficiency. It highlights how important proximity is.”

Carrying out manual tasks remotely can also create additional risks for investors and fund managers alike, as systems in place to mitigate them become stretched or unworkable.

“If your operation is fairly good and you’ve got built-in checks and balances around manual processes, when you’re all sitting on the same floor of the same building that is one thing, but if you’re all dispersed, even working together through a secure VPN or other system, that may be a risk,” says Ed Lopez, chief revenue officer at Calastone.

“Automation definitely removes some of the friction and risk inherent in manual processes, and it obviously supports a work-from-home environment. One consequence of what’s happening now is that people are going to have to automate more and more – and more robustly – because you’ve got fewer people in an office.”

“Most treasurers have access to automated trading through money fund portals, but the next level of automation is letting those portals interface directly through the whole lifecycle of the investment process.”

Taking market management home

Amid an increased desire and need to eliminate manual processes, some fund providers are already rising to the challenge of creating robust frameworks to operate effectively, regardless of where they are, and working smarter with the tools they already have.

“The current working environment has expedited the use of collaborative technologies to connect internal and external teams throughout the trade lifecycle,” says Mark Stockley, head of treasury distribution at Invesco in London.

“As we get used to new ways of working, being able to fully operate digitally will be key, but with limited dependency on placing telephone calls or sending emails or faxes,” he says. “The MMF providers who facilitate operational ease combined with robust investment processes and access to investment professionals will have a competitive advantage.”  

JP Morgan Asset Management, for instance, is partnering with Calastone to power its ‘Morgan Money’ trading platform. “Morgan Money has been designed to deliver a best-in-class customer experience, centered on seamless integration and operational efficiency,” says Paul Przybylski, head of product strategy and development at JP Morgan Asset Management.

The platform will enable JP Morgan to be the first money market fund provider to offer automated settlements to its clients via Calastone’s technology, he says, allowing users to settle trades in real time with automated trade workflow. 

For money fund buyers such as corporate treasurers, shifting operations remotely is not as simple as just plugging in a laptop on a kitchen table. Often it means that trading policies, approval processes and signatories all need to be reviewed and updated.

“Some investors were initially challenged with establishing their home offices and ensuring that they had sufficient connectivity – and the appropriate security – to fully communicate with banking and asset management relationships, such as the ability to place trades, move cash, settle transactions and obtain reporting,” says Stockley.

Almost 75% of treasurers who are members of the Association of Corporate Treasurers said their organizations are automating at least some treasury functions, according to ACT’s 2019 Business of Treasury report; but while more corporate treasurers are using technology, Lopez notes that many money fund investors still have to perform the majority of tasks manually.

“The goal for investors has always been to get as much automation as possible,” he notes. “Most treasurers have access to automated trading through money fund portals, but the next level of automation – which is something we are providing – is letting those portals interface directly through the whole lifecycle of the investment process, from decision-making and trading through to settlement and reporting.”

In a post-pandemic world, technology and automation is going to become an integral part of both fund providers’ and investors’ business continuity plans, as organizations seek ways to become more operationally resilient and avoid the turmoil recently experienced.

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