Ireland's money market fund industry has grown by 4 percent this year through June, according to a new release from the Central Bank of Ireland. Ireland is the second largest money fund market in the world, and the largest outside of the US, with 7.9% of the global MMF market, according to Crane Data's analysis of the Investment Company Institute's quarterly "Worldwide Mutual Fund Assets and Flows." The third largest MMF market, China, with 7.2% market share, also faces new challenges in light of the removal of a cap on bank deposit rates. We discuss the 2nd and 3rd largest money fund global marketplaces below. (Note: The European and Global money fund industry will also be discussed in depth at next month's Crane's European Money Fund Symposium, which will take place Sept. 17-18 in Dublin, Ireland, and in next month's issue of Money Fund Intelligence.)
The Central Bank of Ireland's press release says, "The Central Bank today publishes a new quarterly statistical release on money market funds resident in Ireland. This follows on from the introduction of security by security by security reporting in December 2014. The net asset value of money market funds (MMFs) resident in Ireland grew by over 4 percent from December 2014 to June 2015, rising to E402.3 billion from E387.1 billion in June 2014. This was driven in recent months by euro depreciation as around 87 percent of total MMFs holdings are denominated in Sterling and US dollar."
It continues, "Total assets held by MMFs in June was E405.4 billion. The low yield debt environment saw holdings of euro area debt securities (annualized yield of 0.24 percent) remain broadly stable with noticeable movements into short term Australian and Canadian debt (annualized yield of 0.46 and 0.37 percent respectively). This was driven by sterling denominated funds investing into holdings of Australian debt and by both sterling and dollar denominated funds investing into Canadian debt over the 6 months from December to June 2015 in search for the slightly higher yields available. Euro denominated funds exposure to United States debt also increased from E3.6 billion to E4.4 billion or 21 percent over the 6 months to June 2015."
Further, it adds, "MMFs also sought out to enhance returns by expanding their holdings into securities with longer residual maturities. Securities with residual maturities greater than 3 months increased by 17 percent over the period from December 2014 to June 2015. Holdings of government debt amounted to E51.5 billion in June 2015 with the United States, German and French debt accounting for 85 percent of holdings. This highlights the requirement by MMFs to hold highly rated debt. Equity liabilities stood at E402.3 million in June 2015. Equity liabilities issued to United Kingdom holders in sterling made up the largest contribution at 44 percent (E180.9 billion). Net transactions outflows amounted to E15.2 billion over the 6 months from December 2014 to June 2015, but these were offset by positive revaluations (including foreign exchange effects) of E30.4 billion over the same period."
Crane Data's Money Fund Intelligence International, which tracks the "offshore" or European money market fund sector, shows that over half of the $688.4 billion in assets domiciled in Dublin, Luxembourg or the Cayman Islands are denominated in US Dollars ($373.9 billion, or 54.3%), while E74.7 billion are denominated in Euro and L150.8 billion are in Pound Sterling. Over the past 3 months, USD assets have declined by $3.7 billion. Meanwhile, both Euro and Sterling assets have plunged, dropping by E18.4 billion (-19.7%) and L14.5 billion (-8.8%), respectively. (Crane Data also publishes a `MFI International Money Fund Portfolio Holdings report, which track the monthly holdings of "offshore" money funds.)
Ireland is where the vast majority of these Euro, Sterling, and US Dollar are domiciled. The largest manager of international (outside the US) MMFs is JPMorgan, which is domiciled in `Luxembourg, with $129.6 billion in assets at the end of 2Q, according to MFI International, which tracks these markets. But the next 9 out of 10 largest are all based out of Dublin. The second largest manager of international money market funds, and largest with assets domiciled in Ireland is BlackRock with $100.7 billion, followed by Goldman Sachs with $79.8 billion. Western Asset Management with $79.1 billion is the fourth largest, though much of its money fund base is domiciled in the Cayman Islands. HSBC is the 5th largest "offshore" manager with $34.9 billion, and LGIM is 6th with $29.6 billion.
Meanwhile in China, the central bank cut interest rates in response to its market turmoil, but what impact will this have on Chinese money market funds? China has been one of the few bright spots for money market funds globally in recent years, as assets have skyrocketed. Now the third largest MMF country behind the US and Ireland, China saw assets grow $13.0 billion (up 3.9%) in Q1 to $349.2 billion (7.2% of worldwide assets). Over the last 12 months through March 31, 2015, Chinese MMF assets up are $114.7 billion, or 48.9%. (See our August 10 News, "China Surpasses France as 3rd Largest Money Fund Market: ICI World.")
The Wall Street Journal wrote in "China's Central Bank Cuts Interest Rates," "China stepped up its credit-easing efforts by slashing interest rates and flooding its banking system with new liquidity.... With Tuesday's moves, the Chinese central bank has cut interest rates for the fifth time since November and broadly lowered for the third time the amount of deposits banks are required to hold in reserve."
It added, "In a nod to reforms, the PBOC on Tuesday also dropped a key control on rates for some bank deposits, allowing lenders greater freedom to compete for business. However, the central bank still refrained from fully giving up its control on deposit rates for fear of driving up interest rates and prompting more risk-taking behavior by banks amid a slowing economy, according to people close to the central bank."
