The March issue of Crane Data's Money Fund Intelligence newsletter features a profile entitled, "HSBC's Jonathan Curry Talks Global Liquidity." The following is an excerpt of the first half of this article.... This month, MFI interviews Jonathan Curry, Global CIO for Liquidity at HSBC Global Asset Management. The London-based Curry is also the current Chairman of the Institutional Money Market Funds Association (IMMFA), which represents AAA-rated money funds regulated in Europe. HSBC Global Asset Management manages approximately $65 billion in money fund assets globally in 12 different currencies. Below, we ask Curry about European, U.S. and global regulatory and investment issues impacting money market funds.
MFI: How long have you been running money funds? Curry: HSBC has been in the money funds business for over 20 years. Our largest suite of funds are our international money market funds offered in USD, EUR, GBP and CAD, which are domiciled in Dublin, and are sold to clients around the world excluding the U.S. We also have a suite of 2a-7, U.S. money market funds; and a suite of French domestic money market funds. Plus, we manage in 8 other currencies. We believe we are one of the only managers with reasonable scale in the three major markets of the U.S., "offshore" European, and France.
MFI: What have you been focusing on? Curry: We continue to be focused on working closely with our clients to help them navigate the constantly changing global liquidity landscape. And certainly writing comment letters is one of the things we've been spending time on! We've been involved in the money market fund reform debate in the U.S. market, and in the European market, so that's kept us busy. More recently we've been looking at contingency planning around a potential drop into negative yield territory and what that means for constant net asset value money market funds. We've put some changes in place in terms of our international funds that will allow them to manage through a negative yield scenario, allowing us to treat all our shareholders fairly and transparently. We've received regulatory approval and we've been through a client voting process ... so we're in a position now that we can manage through negative yields.
MFI: What are the main challenges in running a money fund? Curry: There has always been the need to avoid 'torpedo' credit events in portfolios, and similarly liquidity events. Our investment process and credit process have always been designed to manage [around these]. However, historically there was a lot more focus on relative and absolute performance that drove some yield-chasing behavior. But I think there have been some fundamental changes that have taken place as a consequence of the credit crisis. At HSBC Global Asset Management, we are very clear on what we are looking to deliver and what our objectives are -- to deliver preservation of capital and liquidity.
I think from a broader money market perspective there has been a change in the supply and demand dynamics within the marketplace. There has been a reduction in supply of assets available to money market investors ... with a similar level of demand chasing a reducing level of supply.... In some of the local markets that we operate in, it's been less of a phenomenon. But certainly in the developed markets that we operate in, it's been a clear issue that we've needed to manage and address.
MFI: So what are the funds buying? Curry: We've increased our usage of repo post crisis. We're doing a greater volume of our very short dated liquidity in repo and reduced our use of the overnight deposit market. We've also increased the allocation to government securities in our prime funds. We rarely had an allocation to government credits in our prime funds prior to the crisis.... It fluctuates in terms of its weighting within the fund, but there is a constant allocation to this asset class, which is a change. There has been a reduction in asset-backed commercial paper as an asset class. It is an asset class where we have credit expertise and we have a number of ABCP programs approved, but clearly the ... market, in terms of supply, has shrunk significantly.... I think the other change that we've seen post-crisis, particularly in our Euro and sterling funds, is a reduction in the usage of floating rate note product. That is less driven by concerns about that asset class, [than from] a credit spread duration and liquidity perspective.
MFI: What are your clients concerned with these days? Curry: I think clearly a theme post-crisis has been an increased appetite from investors for data and information about the funds that they are invested in. That has led to us, and the industry, providing more information and transparency to investors about the funds. Holdings reports are commonplace now.... People want more information about the underlying assets within the fund. I think other concerns ebb and flow. Concerns around the Eurozone sovereign sector and the Eurozone banking sector were key concerns particularly in the second half 2011 and throughout 2012. I'm not suggesting those concerns have gone away, but certainly the magnitude of these concerns has reduced over that period.
Obviously the level of yields available in the major developed market economies is certainly something that clients are focused on. I think the drivers and the priorities are still preservation of capital and liquidity for the majority of our clients. I think concerns around money market fund reform are not broad based across our client base; it is far more specific to a small percentage of the client base at this stage. But, as we and our clients get more clarity about what exactly that reform is going to look like, I'm sure this will increase the focus of our clients on the impacts and what it means for them.
