Fitch Ratings launched the first issue of a new research publication entitled, "European Money Market Funds Quarterly" yesterday. The newsletter covering "trends, developments and pertinent issues in the money market funds (MMF) industry in Europe." A press release says, "Fitch's initial quarterly MMF newsletter assesses the difficulties faced by European MMFs throughout the financial crisis and notes that European MMFs managers are increasingly focused on sovereign risk, new regulations and stability of funds' capital base. The agency has also considered the adjustments that market participants have implemented to try to ensure that MMFs continue to meet their primary objective of preserving principal stability and liquidity."
The release quotes Fitch's London-based Roxana Mahboubian, "As concerns around sovereign indebtedness continue to mount, money market funds are increasingly reviewing direct government or government-related entity exposures and indirect exposures via financial institutions in such countries as Portugal, Ireland, Italy, Spain and the UK." It also quotes Paris-based Aymeric Poizot, "The low interest rate environment and the improved liquidity observed last year extended average portfolio maturities and led some funds to invest further out on the curve or in slightly less liquid assets."
It adds, "Money Market Funds have radically changed their portfolio composition, with a shift away from floating rate notes and asset-backed securities. Effective liquidity management in MMF also become a key consideration in 2008 and 2009 with managers focusing more on their client base and maintaining sufficient liquidity buffers. On average, 30% of Fitch-rated MMFs portfolios mature in less than seven days, as of end 2009."
The report says, "In 2009, assets under management (AuM) in European MMF remained flat overall (EUR1.3trn as at end-2009), with growth in the first half of the year offset by some outflows during the last quarter of 2009. AuM in 'AAA' rated MMFs increased by only 2.7% to EUR438.61bn (as at end-2009), the smallest annual growth rate in the past nine years. The bulk of the industry assets remained stable in a cash rich but still uncertain environment. However, some money left low-yielding MMFs in search of returns while riskier asset classes exhibited record performances from Q209 onwards."
On French money market funds, Fitch says, "A pronounced and prolonged redemption period for French domiciled funds occurred in the autumn of 2007 with the rising credit, and subsequent liquidity, concerns across asset-backed securities and structured investment vehicles. Outflows however affected mostly dynamic or enhanced MMFs and several managers of such fund types in Europe were either forced to suspend redemptions or had to take the decision to liquidate their funds." (Note that some, including Crane Data, don't consider these French vehicles true "money market funds".)
