AN INTRODUCTION TO MONEY MARKET FUNDS. Northern Trust Global Investments

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1 AN INTRODUCTION TO MONEY MARKET FUNDS Northern Trust Global Investments

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3 AN INTRODUCTION TO MONEY MARKET FUNDS Northern Trust Global Investments Northern Trust Global Investments (NTGI), the asset management arm of Northern Trust, is a multi-asset class manager offering a broad array of investment solutions for sophisticated institutional investors. Utilising a global investment platform and philosophy, our active, quantitative, cash/short duration and multimanager strategies provide a distinct mix of proprietary and open architecture capabilities. A strong culture of integrity, teamwork, diversity, appreciation and passion are a fundamental part of our investment DNA, allowing us to nurture investment talent in all areas, including research, trading, portfolio management and client service. A focus on cash management Short duration and fixed income investment are at the heart of our asset management business. As one of the world s largest and most experienced global cash managers, we offer our clients many advantages: Consistent and robust investment process Extensive credit review process Consultative, client-focused servicing from experienced professional staff Ongoing risk and compliance monitoring These benefits are underpinned by the peace of mind our clients achieve from partnering with an organisation regarded as one of the industry s leading cash management houses, further strengthened from being a founder member of the Institutional Money Market Funds Association (IMMFA). 1

4 OUR CONSERVATIVE INVESTMENT STYLE EMPHASISES In order of importance: Principal preservation Comprehensive risk control and an extensive credit review process are fundamental in the implementation of our investment strategy Liquidity management Size and scale coupled with sophisticated technology allow for the precise management of flows and investor liquidity needs Yield maximisation Through the use of a well defined decision making process and the utilisation of high quality securities, we seek to maximise investments in higher yielding, actively managed instruments while maintaining necessary daily liquidity 2

5 AN INTRODUCTION TO MONEY MARKET FUNDS Fund ranges and objectives Northern Trust Global Investments offers Aaa/ MR1+* Moody s rated offshore money market funds for sterling, US dollars and euro currencies. The funds are all domiciled offshore in Dublin s International Financial Services Centre providing tax efficiency and a listing on the Irish Stock Exchange. Our cash fund strategies have been designed to give investors the choice to invest in a range of funds with differing risk/return profiles all of which emphasise capital preservation. For investors with a short term horizon who seek the security of government exposure, we offer the NT Government Liquidity Funds For investors with a short term horizon, coupled with high or uncertain liquidity requirements, we offer the NT Global Cash Funds For investors with an investment horizon of 1-6 months and more certain liquidity requirements, we offer the NT Strategic Money Market Funds NT Strategic Money Market Funds $ Benchmark: 1 month LIBID return NT Global Cash Funds $ Benchmark: 1 week LIBID NT Government Liquidity Funds $ Benchmark: overnight LIBID risk / weighted average maturity We pride ourselves on understanding our clients and can guide them to the most appropriate strategy based on their investment objectives. As a result, investors in our money market funds include clients as diverse as corporate and local government treasurers, central banks, government entities and pension funds. *What is an MR1+ rating?: The MR1+ rating is granted by Moody s and is the highest Market Risk rating achievable. From Moody s website, their definition of Market Risk Ratings is Moody s Mutual Fund Market Risk (MR) ratings are opinions of the relative degree of volatility of a rated fund s net asset value (NAV). In forming an opinion on the fund s future price volatility, Moody s analysts consider risk elements that may have an effect on a fund s net asset value, such as interest rate risk, prepayment and extension risk, liquidity and concentration risks, currency risk, and derivatives risk. The ratings are not intended to reflect the prospective performance of a fund with respect to price appreciation or yield. The Moody s definition for an MR1 rating is MR1 - Money Market Funds and Bond Funds rated MR1 are judged to have very low sensitivity to changing interest rates and other market conditions. A + modifier appended to the MR1 rating category denotes constant NAV money market funds and other qualifying funds. 3

6 Fund characteristics Objective Investment horizon NT Government Liquidity Funds To preserve capital, maintain liquidity, and generate current income by investing in short term government securities. Short-term NT Global Cash Funds To preserve capital, maintain liquidity, and generate current income by investing in money market securities. Short-term NT Strategic Money Market Funds To preserve capital, maintain liquidity, and generate current income by investing in money market securities, for balances with a longer investment horizon. 1 6 months WHY MONEY MARKET FUNDS? Money market funds are constant NAV pooled vehicles that invest in short-term debt instruments such as bank deposits, certificates of deposits, commercial paper and floating rate notes. Money market funds provide a secure and attractive alternative to bank deposits. They provide capital preservation, daily liquidity, and investors benefit from better diversification and economies of scale than may be achieved through direct investments. Additionally, money market funds are domiciled in offshore locations to optimise tax efficiency. 4

7 AN INTRODUCTION TO MONEY MARKET FUNDS Benchmark Credit rating Weighted average maturity range Dealing cut off (daily basis) Available currencies Overnight LIBID Aaa/ MR1+ by Moodys 5 30 days 10am (GMT) GBP/EUR 4pm (GMT) USD USD, EUR, GBP 1 week LIBID Aaa/ MR1+ by Moodys days 2pm (GMT) GBP/EUR 8pm (GMT) USD USD, EUR, GBP 1 month LIBID Aaa/ MR1+ by Moodys days 11am (GMT) GBP/EUR 5pm (GMT) USD USD, EUR, GBP 5

8 Northern Trust security selection Our disciplined investment process emphasises risk management. With comprehensive credit research fundamental to our fixed income offering, investors benefit from: A team of experienced and dedicated credit research professionals Extensive fundamental company and industry financial analysis Active dialogue with debt issuers and rating agencies A universe of over 500 issuers Above all else, our credit approval process is independent from our portfolio management team. Our analysts can change internal ratings to reflect where value and risk exists based on their credit research. This is not communicated to the outside world, ensuring analysts can change views and ratings independently from external rating agencies and therefore without impacting capital markets. The knowledge is proprietary and provides an edge to the investment process of our portfolio management team. 6

9 AN INTRODUCTION TO MONEY MARKET FUNDS What to look for in a money market fund Not all money market funds are created equal. Factors for investors to take into consideration are: AAA rating by one of the main global rating agencies such as Moody s, Standard & Poor s and Fitch. This means the fund has been independently assessed for credit quality, portfolio construction and operational risk. Membership of the Institutional Money Market Funds Association (IMMFA). IMMFA is a trade association for AAA rated offshore money market funds, which has established its own Code of Practice to ensure the provision of the highest-quality products and services by its members. Scale having a large number of varied client types in your fund such as corporate and local government treasurers, central banks, government entities and pension funds reduces the potential for liquidity issues. A fund with a small concentration of very similar type clients, who could be affected by the same economic conditions, may require withdrawals at the same time. 7

10 Why NTGI cash management? The Northern Trust money market funds represent a flagship product offering from a world class asset manager part of a global organisation with a history of financial strength (AA- rated by S&P)*, conservative business management and stability in all economic conditions over the past 120 years. Northern Trust cash management solutions bring you: An industry-leading cash manager One of the world s largest and most experienced cash managers Over $250 billion in short duration assets under management* Founding member of the Institutional Money Market Funds Association Funds domiciled offshore in Dublin and are AAA/MR1+ Moody s rated An integrated team-focused solution Global investment platform A robust and consistent investment process Extensive credit review practice Sophisticated technology to manage portfolio risk A consultative approach to developing innovative solutions Delivering a broad array of market leading products and capabilities Ensuring client needs are catered for in a nimble and flexible manner Attracting diverse clients: corporate and local government treasurers, central banks, government entities, pension funds * as at 30th June

11 FOR MORE INFORMATION Please contact: Phone: Nigel Brill Relationship Manager +44 (0) Andy Clack Business Development, Middle East +44 (0) Steven Cress Head of International Sales and Client Services +44 (0) Joan Doherty Business Development, UK/Ireland +44 (0) David Rothon Investment Strategist +44 (0) Jason Toussaint Senior Investment Strategist +44 (0)

12 Important information This material is directed to eligible counterparties and professional clients only and should not be relied upon by retail investors. For Asia Pacific markets, it is directed to institutional investors, expert investors and professional investors only and should not be distributed to or relied upon by retail investors. This material is intended only for the exclusive benefit and use of our clients or prospective clients. Northern Trust and its affiliates may have positions in, and may effect transactions in, the markets, contracts and related investments described herein, which positions and transactions may be in addition to, or different from, those taken in connection with the investments described herein. The information in this presentation reflects prevailing market conditions and our judgment as of this date, which are subject to change. Past performance is no guarantee of future results. All material has been obtained from sources believed to be reliable, but the accuracy, completeness and interpretation cannot be guaranteed. The information contained herein is for your private information and is intended for use with current or prospective clients of Northern Trust. The information does not constitute investment advice or a recommendation to buy or sell any security and is subject to change without notice. Northern Trust Global Investments (NTGI) comprises Northern Trust Investments, N.A. (NTI), Northern Trust Global Investments Limited (NTGIL), Northern Trust Global Investments Japan, K.K. (NTGIJ), the investment advisor division of The Northern Trust Company (TNTC) and Northern Trust Global Advisors, Inc. (NTGA), and its subsidiaries to offer investment products and services to personal and institutional markets. As of 30/06/2008, NTGI had assets under management totalling $751.4 billion. For purposes of compliance with the Global Investment Performance Standards (GIPS ), we have defined our firm as Northern Trust Global Investments Services (NTGIS, a subset of NTGI) that includes those investment products managed by NTI, NTGIL, NTGIJ, and TNTC that are distributed through national channels. As of 30/06/2008, Northern Trust Global Investment Services (NTGIS) had assets under management totalling $445 billion. In the United States, investment advisory services are offered by Northern Trust Investments, N.A. (NTI). NTI is an investment adviser registered with the U.S. Securities and Exchange Commission (SEC File No ). Principal Office: 181 West Madison Street. Chicago, Illinois In the United Kingdom, investment management services are offered by Northern Trust Global Investments Limited (NTGIL). This material was issued by NTGIL. NTGIL is authorised and regulated by the Financial Services Authority in the United Kingdom. Registered in England Registered Office: 50 Bank Street, London E14 5NT. The Global Funds information is issued by NTGIL. IRS CIRCULAR 230 NOTICE: To the extent that this communication or any attachment concerns tax matters, it is not intended to be used, and cannot be used by a taxpayer, for the purpose of avoiding any penalties that may be imposed by U.S. law. For more information about this notice, see Reference /0908 northerntrust.com