A new report by Fitch Ratings finds that the bulk of European money market funds come from three countries -- France, Ireland and Luxembourg -- and it compares the two types of funds in Europe. (Note: Crane Data tracks the funds in Ireland and Luxembourg via our Money Fund Intelligence International, but not those domiciled in France. We do not consider the latter "money market funds" and refuse to acknowledge them as such.) The Fitch report, called "Diversity of European Money Market Funds" examines this two-tiered framework of European MMF industry, which groups funds into "short-term money market funds" and "money market funds." States the Fitch report, "European money market funds' assets totalled EUR917bn at end-June 2014, as per the latest EFAMA statistics. Assets have gradually declined since they peaked in March 2009 at EUR1.4 trillion."
It goes on, "European money market funds are defined as "short-term money market funds" or "money market funds" following the introduction of harmonised European money market fund definitions in 2010. In November 2014 the European Commission proposed further changes to the regulatory framework, which are still under discussion. These changes, if adopted, would have far reaching implications for the money market fund industry and cash investors, notably for accounting practices."
Fitch writes, "Investment guidelines and risk profiles of European money funds vary within the framework provided by the regulation, depending on the fund's balance between safety of investment and yield generation. Money market fund and liquidity product ranges may encompass both the most conservative money funds, with extremely strong capacity to provide liquidity and invested capital, and other less risk-averse, short-term investment solutions. The demand for the latter has been fuelled by extremely low yields and the greater ability of investors to differentiate between their short-term and strategic cash management needs."
They add, "Minimum investment horizons of sampled funds vary between one day for most short-term MMFs, including AAAmmf funds and alike, and more than 12 months for sampled short-term bond funds. For MMFs it is wide-ranging from seven days up to more than 12 months in few cases, although the majority is below three months."
Fitch explains, "The vast majority of European money market funds are domiciled in France, Ireland and Luxembourg as money market funds domiciled in these countries have consistently totalled around 90% of European money market funds' assets over the past five years. Fitch estimates that 62% of European money market funds' assets fall under the ESMA short-term MMF category, of which more than three-quarters are CNAV, the remainder being VNAV funds. Money market funds that are classified as MMFs, the second ESMA category, account for about 30% of the European money market fund universe. These are exclusively VNAV Funds."
They add, "There is however considerable variation between countries. Short-term MMFs account for an overwhelming portion (97%) of Ireland-domiciled and around 70% of Luxembourg money market funds. By contrast, only one-third of France-domiciled money market funds are short-term MMFs and two-thirds are MMFs. This reflects the notable but steady shift in investors' positioning from when the ESMA definition came into force in 2011, where 60% of French money funds were short-term MMFs. Short-term MMFs assets are almost evenly spread across US dollars, euros and sterling, based on funds' currency of denomination. [Non short-term] MMFs assets are by contrast much more concentrated in euros, reflecting an investor base more anchored in Continental Europe."
It continues, "More than 320 asset management companies are involved with managing European money market funds but only five accounted for 40% of total assets. These include Amundi, BlackRock, JPMorgan Asset Management, which individually have more than EUR100bn of European money market fund assets under management each, and Goldman Sachs Asset Management and BNP Paribas Investment Partners, with close to EUR60bn each. Amundi, BNPP IP and CM-CIC Asset Management are the largest players in ESMA MMF. In short-term MMFs, BlackRock, JPMorgan AM and Goldman Sachs AM dominate the market, followed by Deutsche AM, BNPP IP and HSBC Global AM. This reflects an increased concentration among short-term MMF asset managers as they are looking for scale in this low, declining margin market."
In a conference call that accompanied the release of the report, Charlotte Quiniou, director, Fund and Asset Manager Group at Fitch Ratings, discussed the prospects for money market fund reform in Europe. "Our view is that the proposed reform will be a big shakeup for the industry in Europe and it may lead to some outflows as some investors may decide to withdraw from the constant NAV fund that they are accustomed to. However, we believe that the impact may not be as bad dramatic as some initially feared," she said. "We had a recent poll as the cash manager conference that we held two weeks ago and it shows that many investors won't change strategies. This is mainly because alternatives are limited. We also believe that certain aspects of the regulation will make money market funds less risky through the liquidity and diversification regulation that is being proposed."
In related news, an article on Seekingalpha.com shows that there has been significant consolidation amongst MMFs in Europe. A story entitled "Fund Launches, Closures, And Mergers During Q3 2014," reports significant consolidation amongst European money market funds. It says, "Q3 2014 witnessed the launch of 429 funds: 149 equity funds, 120 bond funds, 117 mixed-asset funds, 38 "other" funds, and 5 money market funds. During the same period 324 funds were liquidated: 94 equity funds, 63 bond funds, 72 mixed-asset funds, 71 "other" funds, and 24 money market funds. For Q3 2014, 318 funds were merged: 93 equity funds, 102 bond funds, 84 mixed-asset funds, 5 "other" funds, and 34 money market funds.... Of significance was the decrease in money market products, where 58 products were removed from the market while only 5 were launched."
The article continues, "Since consolidation in the European fund industry has not yet finished, we expect to see more funds closed or merged over the next few years. That said, Q3 2014 saw a slowdown in fund liquidations, while the number of fund mergers in Europe went up. That might be an indicator the industry has already liquidated the funds that are no longer in the favor of investors. The industry may now be lifting synergies within product ranges by merging funds with similar investment objectives to increase the profitability of the funds."
