We learned from an article entitled, "JP Morgan Asset Management to merge liquidity funds" from EFinancial News that JPMAM will merge its Luxemburg-domiciled E856 million Euro Government Liquidity Fund into the E11.4 billion Euro Liquidity Fund. (Euro money market funds are only available to non-U.S. investors and are used primarily by European institutional investors and multinational corporations.) A document posted Friday on JPMAM's www.jpmgloballiquidity.com website, entitled, "Euro Government Liquidity Fund merger with Euro Liquidity Fund Q&A, says, "The Board of Directors of JPMorgan Liquidity Funds has decided to merge the following sub-funds on 14th February 2014: Merging sub-fund, JPMorgan Liquidity Funds – Euro Government Liquidity Fund; Receiving sub-fund, JPMorgan Liquidity Funds – Euro Liquidity Fund AUM E948.7M as at 29 November 2013 AUM E11.100B as at 29 November 2013."
The Q&A asks, "Why are we merging these sub-funds and what are the potential benefits to clients?" They explain, "The Euro Government Liquidity Fund was closed to subscriptions and switches in when the European Central Bank ("ECB") reduced the deposit rate to zero percent in July 2012. As a result of the prolonged ultra-low interest rate environment, the Board has decided to merge the Euro Government Liquidity Fund with the Euro Liquidity Fund. With its broader investment universe, it is believed that the Euro Liquidity Fund is better positioned to achieve a positive net yield in the future."
JPMAM Europe continues, "How does the strategy of the receiving sub-fund differ from the strategy of the merging sub-fund? The Euro Government Liquidity Fund has exposure to Euro-denominated debt issued by European governments, agencies and supranational institutions. The Euro Liquidity Fund has some exposure to European Governments, agencies and supranational institutions, but in addition takes exposure to Euro-denominated corporate and financial debt."
They add, "What options do I have as a shareholder? If you agree with the merger, no action with regard to your holdings is necessary. If you do not agree with the merger, you have the following options available: Switch your holdings into other sub-funds in the J.P. Morgan Asset Management range of funds. Redeem your holdings in the sub-fund and withdraw their proceeds. We recommend that shareholders seek independent tax and investment advice before making any final decision around their holdings affected by the merger."
JP Morgan's Q&A adds, "What is happening with respect to interest rates in the Eurozone? The ECB reduced the deposit rate to zero percent in July 2012. In November of this year it lowered the main refinancing rate to 0.25% while leaving the deposit rate at zero percent and maintained the forward guidance that it is prepared to keep rates at their current or lower levels for an extended period. It has further indicated that it has not ruled out a move into negative deposit rates."
Crane Data's Money Fund Intelligence International, which tracks "offshore" money market funds based in Dublin and Luxemburg, tracks 23 Euro-denominated money market funds (not available to U.S. investors) with E73.4 billion in assets; just 4 of these investing exclusively in "government" securities. (BlackRock, Goldman Sachs and RBS also have Euro MMFs.) Assets in Euro MMFs have declined from E88 billion at the start of 2013, and have declined from E108 billion since the start of 2012. Finally, note that we also published our latest MFI International "Offshore" MF Portfolio Holdings, with data as of Nov. 30, on Saturday.
