The second annual Crane's European Money Fund Symposium is in the books with record attendance turning out to hear industry experts discuss the latest trends in European money market funds. The two day event, which took place Sept. 22-23 at the Hilton London Tower Bridge, attracted some 125 attendees, up from 105 last year in Dublin. It kicked off with an address by Jonathan Curry, Global CIO for Liquidity at HSBC Global Asset Management, and Chairman of IMMFA, the London-based Institutional Money Market Funds Association, on the State of MMFs in Europe. Curry told the audience to turn challenges into opportunities, which could include new products, consolidation, and outsourcing. (Note: Crane Data would like to thank all of the speakers, sponsors and attendees for participating in our London event earlier this week; we hope to see you next year in Dublin, Sept. 24-25, 2015!)
Curry said, "At times I think we all feel a little bit gloomy, a little bit down, but I really believe that we have a real opportunity here. Change creates opportunity and we're in a period of change in the industry. I think we have to embrace it and move forward and take advantage of the opportunities that are out there today."
Curry opened by saying that money market funds have actually been a positive story the past 6 months with assets increasing over that time period. Crane Data's Money Fund Intelligence International shows total European money fund assets currently at $751.6 billion (as of Sept. 23) up from $702.2 billion on March 1, 2014. Also, the CNAV industry is expected to have a larger market share than the VNAV for the first time this year. "That's a testament to the CNAV product to all the providers who offer these products to the investors in Europe and elsewhere in the world," he said.
One of the big challenges on the horizon is money market reform, which were proposed in Europe last year but haven't yet been acted on by Parliament. "The current reform proposals are clearly stacked against the CNAV industry," he said, and if enacted as proposed, it will shake the industry. "The 64,000 [pound] question is how much? I'm probably more optimistic than some in that whatever the outcome of reform, when the industry gets together behind those reforms and explains it to our investors, I'm pretty convinced that whatever that model is, that the industry, working together, promoting those reforms, it's not going to be quite as bad as people think," said Curry.
"One of the potential challenges is that I think reform could lead to further consolidation in the industry," he added. "We're seeing consolidation in the asset management industry as a whole and that's been a trend that's been going on for a few years. Reform could lead to further consolidation in the money fund industry." Another challenge is it could lead to fewer investment options for investors and providers. Also, he added, "If the regulations aren't quite right, it could exacerbate run risks. There are parts of the current proposal in Europe that we believe will exacerbate run risk in money market funds if they go through as they are today."
But there are also opportunities with reforms. "As an industry here in Europe, we are engaging with regulators to shape future regulations." There will also be opportunities to develop new products. "We're already seeing it," he said. "If the regulation is right, we could be in a world where systemic risk is reduced -- that's a good thing for our investors, fund providers, and regulators. If we get it right, there's an opportunity here."
Another big challenge is ultra-low yields. "It's a challenge across all currencies but obviously particularly in the environment we're in today in the Eurozone. It's an increasing challenge. Since the middle of this year, it's become even harder for all of us to manage to these ultra-low yields that we're seeing, particularly in the Eurozone. It reduces revenue for fund providers through fee waivers, means low income for investors in money market funds, and it has cost in resource allocations. It takes time to put in place mechanisms such as the cancellation of units to deal with negative yields. And now we're obviously moving into uncharted water in the Eurozone and that in itself could bring new risks. So, clearly it’s a challenging environment for us all."
"However," he added, "again there are opportunities here. The industry has demonstrated that it is innovative and resourceful. We've had to use our gray matter. It's been challenging to think of how to deal with some of these new challenges that the industry faces. We've shared the pain of ultra-low yields with our investors. I think that builds stronger relationships between fund providers and their investors.... Think how good that revenue numbers will look when that yield curve does actually turn up," he quipped.
The lack of supply is also a big issue, he said. The lack of supply is driven primarily by bank regulations, he added, which reduce their demands for short term funding. The downgrades for the credit rating agencies, on average, have shrunk the eligible supply for rated MMFs. "This is going to continue. This is not going to get better and it's going to be a growing change for all of us as we go into 2015 and beyond."
Another developing trend is the outsourcing of the management of cash. "It has actually, in my opinion, become more attractive as risk has risen, the ability to get diversified more challenging on a day to day basis, the resources that are required to manage a short-term pool of cash investments is more time consuming, more challenging every day. That points, to me, towards an outsourcing solution. In this type of environment, this is where money market providers can really come into their own, really add value to their investors beyond just providing them with a product." He continued, "The importance of fundamental risk analysis is continuing to rise, again, pointing towards money funds as a clear option for outsourcing the investment in cash.... So there are clear opportunities for us an industry to take advantage of."
