Rethinking institutional cash: The role of public debt money market funds
KEY POINTS
Against this backdrop, we believe money market funds investing almost all of their holdings in government assets – known as Public Debt Constant Net Asset Value (PDCNAV or CNAV) funds – have reasserted their relevance. They are designed explicitly to prioritise capital stability and daily liquidity.
This type of money market fund has become distinctly important for European professional investors seeking a resilient solution to manage cash.
The changing landscape for institutional cash
Historically, bank deposits were the backbone of institutional cash allocations. However, recent market events have highlighted the risks of over-concentration and the importance of diversification, even within short-term liquidity portfolios.
At the same time, rising interest rates have made liquidity assets economically meaningful again, bringing greater focus to structure, transparency and risk controls.
For treasurers, the challenge is to balance operational simplicity and prudent risk management. For insurers and other financial institutions, liquidity assets must also align with governance frameworks, regulatory expectations and balance sheet efficiency.
In this environment, the question is no longer whether cash should be actively managed, but how.
Professional cash investors’ objectives
Despite differing institutional contexts, professional cash investors share a core set of objectives. Foremost is capital preservation – the need to protect the value of the principal with minimal tolerance for volatility. What is also important is reliable, same-day liquidity to meet operational or regulatory demands.
Transparency, governance and predictability are critical. Investors increasingly expect detailed reporting, clear risk limits and robust liquidity stress testing. Products that combine these attributes within a familiar, regulated framework are therefore well positioned to meet the needs of modern cash management.
Understanding European money market fund structures
European money market fund regulation provides several structural options, including Variable Net Asset Value (VNAV), Low Volatility Net Asset Value (LVNAV) and Public Debt Constant Net Asset Value (PDCNAV) funds. Each serves a purpose, but they are not interchangeable.
Public debt CNAV funds invest almost 100% in high-quality government, agency and supranational securities. They maintain a stable net asset value and are subject to stringent liquidity, maturity and diversification requirements. This combination makes them particularly suitable for investors who place the highest priority on capital stability and liquidity resilience.
Why public debt CNAV funds play a distinct role
The defining feature of a public debt CNAV fund is its focus on the lowest-risk segment of the money market. By limiting exposure to sovereign and public-sector issuers, these funds aim to minimise credit risk and maintain daily liquidity.
“Constant Net Asset Value (CNAV) money market funds offer a compelling opportunity in today’s environment by combining maximum stability, competitive short‑term yields, and high daily liquidity.”, says Thibault Malin, BNP Paribas Asset Management’s Deputy Head of Global Money Markets.
During periods of market stress, this conservative approach can be especially valuable. High liquidity buffers, short maturities and rigorous stress testing are designed to ensure that investor redemptions can be met without compromising portfolio integrity. For institutions that view cash as a risk-management tool rather than a return-seeking asset, this discipline is critical.
How CNAV funds compare with the main alternatives
When compared with bank deposits, CNAV funds offer diversification of counterparty risk and daily access to liquidity. Relative to direct holdings of Treasury bills, they provide operational efficiency and actively manage rate, credit and liquidity risks. Compared with LVNAV and VNAV money market funds, they avoid financial and other private sector exposures.
These distinctions underline why CNAV funds can be used both as a core liquidity allocation and a tactical investment.
Practical applications for professional investors
In practice, these funds are used in a variety of ways. Corporate treasurers may allocate operating cash to support day-to-day liquidity needs, while diversifying away from bank balance sheets. Public debt CNAV money market funds are a practical solution by combining capital stability at par with same-day liquidity and diversified exposure to high-quality sovereign issuers.
Used alongside bank deposits, CNAV funds can enhance resilience and transparency without adding operational complexity. For treasurers seeking a disciplined, institutionally governed home for operating cash, they are a proven and familiar option.
For insurers, liquidity assets must support both balance-sheet resilience and regulatory expectations. Public debt CNAV money market funds provide a conservative liquidity sleeve aligned with strong governance, high credit quality and predictable liquidity.
By focusing on government and public-sector issuers, we believe CNAV funds can help insurers manage short-term liquidity, while maintaining a clear risk profile. They are particularly suited to cash allocations where capital protection and certainty take precedence over yield optimisation.
In all cases, the common thread is the need for a predictable, transparent and resilient cash solution.
What to look for in a manager
Well-constructed public debt CNAV funds are characterised both by their asset composition and the quality of their risk management, governance and operational infrastructure. Investors should expect clear disclosure of liquidity buffers, stress-testing practices and escalation procedures as well as consistent reporting and experienced portfolio management oversight.
For professional investors, selecting a CNAV fund is therefore as much about confidence in the manager’s discipline and controls as it is about the structure itself.
Conclusion
As institutional approaches to cash management evolve, we believe public debt CNAV money market funds can continue to play a vital role. They offer a robust framework for preserving capital, accessing liquidity and managing short-term risk.
For European professional investors, they remain a cornerstone solution for cash that must always be available, predictable and secure.
Disclaimer
This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of BNP PARIBAS ASSET MANAGEMENT Europe or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.
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