Fitch Ratings published a report, "Money Market Funds in Saudi Arabia," which sheds some light upon the embryonic money market fund industry in the Middle Eastern Kingdom. Their press release, entitled, "Fitch: Institutional Money Fund Foundations Laid in Saudi Arabia," says, "Fitch Ratings says in a new report that the foundations of an institutional money fund industry have been laid in Saudi Arabia. Retail investors represent the largest share of money fund investors in Saudi Arabia; however, Fitch has identified an increasing number of funds offering high minimum initial investment share classes, which are typically accessible only to large or sophisticated, ie non-retail, investors. The growth of this nascent institutional segment is supported by the growth of the money fund sector in Saudi Arabia and the solid regulatory framework already in-place for these funds."
The release explains, "Overall, Fitch estimates that the Saudi Arabian money fund sector grew by around 10% over the three years to end-December 2017 in US dollar terms, with asset expansion particularly high in 2017. This compares with a global money fund growth of 5% over the same period."
It continues, "Saudi money funds are primarily denominated in Saudi riyals, although a limited number are denominated in US dollars. Saudi Arabia is approximately by total asset the 20th-largest money fund domicile (approximately 19 billion in US dollar terms) globally. While Saudi Arabia is a middle-ranking money fund domicile, it is by far the largest in the Middle East region.... Fitch expects continued growth in the Saudi Asset management industry, which is already the largest Islamic asset management industry globally."
Fitch tells us, "Saudi money funds benefit from a solid regulatory framework: they are regulated under the Investment Funds Regulations of the Capital Market Authority of Saudi Arabia as amended 23 May 2016. This provides for limits on concentration, market and liquidity risk. For example, applicable regulation in Saudi Arabia caps funds' weighted average life (WAL), a measure of sensitivity to spread risk, at 120 days.... On the other hand, applicable regulation requires only 10% weekly liquidity, which is substantially lower than the 30% required by US and European regulation. Furthermore, Saudi Arabian money funds can run more concentrated portfolios than would be permitted under US or European regulation, although the funds reviewed by Fitch demonstrate prudent diversification, with issuer exposures typically capped at 10%." The release adds, "Saudi money funds primarily invest in murabaha contracts and sukuk issued by Fitch-rated domestic and regional sovereigns, banks or corporates. Saudi Arabia itself is rated 'A+'/'Stable'/'F1+', with a Country Ceiling of 'AA'. Fitch rates most domestic and regional banks investment-grade."
The full report comments, "Saudi Arabia stands out as the largest MMF domicile in the Middle East and North Africa (MENA) region. Fitch estimates that its closest competitor, Morocco, has only around one third (around USD7 billion) of the MMF assets of Saudi Arabia as of end-December 2017. Compared with its closer neighbours in the GCC states Saudi Arabia is the clear leader – Fitch has only identified a handful of MMFs in Kuwait and the UAE and the AUM in these funds is negligible."
It tells us, "Malaysia, like Saudi Arabia, is a major Islamic Finance centre. Fitch estimates that Saudi Arabia's MMF AUM is broadly comparable to that of Malaysia. However, Saudi Arabia's asset management industry is larger overall. Broadly, the Islamic Finance industry – and within it, Islamic asset management – has seen growth and increased institutionalisation. Both of these trends will likely support the continued growth of the MMF segment in Saudi Arabia."
Fitch writes that the "Five Largest Money Funds Domiciled in Saudi Arabia include: AlAhli Saudi Riyal Trade, Samba-International Trade Finance Fund, Al Rajhi Capital SAR Commodity, AlAhli Diversified Saudi Riyal Trade, and RiyadC-Commodity Trading Fund.
In other news, ICI released its latest "Money Market Fund Assets" report yesterday, which showed a drop in Prime MMFs following their biggest increase of 2018 the prior week. ICI's numbers show money fund assets rising for the third week in a row following three straight weeks of tax-driven declines. Year-to-date, MMF assets have decreased by $20 billion, or -0.7%, but they've increased by $173 billion, or 6.6%, over 52 weeks.
ICI writes, "Total money market fund assets increased by $11.48 billion to $2.82 trillion for the week ended Wednesday, May 16, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $11.97 billion and prime funds decreased by $2.94 billion. Tax-exempt money market funds increased by $2.44 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.218 trillion (78.7% of all money funds), while Total Prime MMFs stand at $462.0 billion (16.4%). Tax Exempt MMFs total $138.2 billion, or 4.9%.
They explain, "Assets of retail money market funds increased by $3.66 billion to $1.02 trillion. Among retail funds, government money market fund assets decreased by $431 million to $626.34 billion, prime money market fund assets increased by $1.93 billion to $263.22 billion, and tax-exempt fund assets increased by $2.16 billion to $130.29 billion." Retail assets account for over a third of total assets, or 36.2%, and Government Retail assets make up 61.4% of all Retail MMFs.
ICI's release adds, "Assets of institutional money market funds increased by $7.82 billion to $1.80 trillion. Among institutional funds, government money market fund assets increased by $12.40 billion to $1.59 trillion, prime money market fund assets decreased by $4.87 billion to $198.77 billion, and tax-exempt fund assets increased by $283 million to $7.86 billion." Institutional assets account for 63.8% of all MMF assets, with Government Inst assets making up 88.5% of all Institutional MMFs.
