The Wall Street Journal writes again on Chinese money market funds in "Rivals Reap Rewards as China's Monster Money-Market Fund Shrinks." The article says, "Beijing is forcing the world's largest money-market fund to shrink, creating a bonanza for others. At one point this year, assets under management at the Tianhong Yu'e Bao fund -- run by China's largest financial-technology company, Ant Financial Services Group, an affiliate of e-commerce behemoth Alibaba Group Holding Ltd. (BABA) -- were twice those of their biggest U.S. peer."
It tells us, "But Chinese regulators grew uneasy about the systemic risk of so large a fund. To aid its downsizing, Ant in May started adding money-market funds overseen by other domestic asset managers to its Yu'e Bao investment platform, helping send tens of billions of dollars their way. Between March and the end of September, assets under management at Tianhong Yu'e Bao fell by a fifth, to $190 billion from $244 billion, while assets in a dozen other money-market funds connected to Ant's platform surged by about $80 billion, according to Wind Information Co."
The Journal piece continues, "One fund overseen by a Chinese joint venture of U.S. firm Invesco Asset Management grew over that period to 55.3 billion yuan ($7.9 billion) from just 548 million yuan. The fund, created in 2013, began taking money from Alipay's customers in mid-June. China's money-market mutual fund industry has boomed since Ant created the Tianhong Yu'e Bao fund in 2013, with assets hitting 8.9 trillion yuan ($1.3 trillion) at the end of August, according to the Asset Management Association of China."
It explains, "Tianhong Yu'e Bao (yu'e bao means 'leftover treasure') was a financial innovation that changed the way everyday people in China invest in money-market funds, which traditionally had been sold by banks and asset managers. Ant's fund platform provided a place for individuals to park their pocket change, idle cash and online savings, and earn investment returns before using the money for online shopping or to purchase things like air tickets and train rides. Better yields than those offered on bank deposits were another draw."
The Journal tells us, "Last year, however, after assets in the flagship money-market fund rose rapidly, Chinese financial regulators began pressuring Ant to shrink it. Another concern: The fund was stretching for returns by investing heavily in assets that couldn't be easily sold, like high-yielding bank certificates of deposits, according to its reports to investors."
Finally, they write, "Tianhong Yu'e Bao fund's investment yield is now lower than those of most of the money-market funds available on Alipay. Its seven-day annualized yield was 2.59% recently, down from over 4% earlier this year, as Beijing has injected more liquidity into the financial system and Ant has shifted more of the fund's assets into lower-yielding instruments." (For more, see our Oct. 1 News, "Worldwide Money Fund Assets: Chinese MFs Plunge; US, India Up in Q2.")
In other money fund news outside the U.S., we learned from ignites Europe that Valdis Dombrovskis, Vice President of the European Commission, wrote a letter to Steven Maijoor, the Chairman of ESMA, entitled, "Subject: Implementation of the Money Market Funds Regulation." While the letter appears to uphold a ban on reverse distribution mechanisms, European money fund providers still believe the matter is undecided, and are awaiting confirmation from the EU entities and regulators to continue with RDM.
It says, "I am writing to you in reply to your letter dated 20 July 2018 on the implementation of the Money Market Funds (MMF) Regulation. I would like to thank you for all the work that your team has done on this file, especially with respect to the draft implementing technical standards and the draft delegated act."
The letter continues, "I welcome that the reverse distribution mechanism, often referred to as 'share cancellation', was discussed recently at the Board of Supervisors and that all relevant competent authorities are therefore aware of the opinion of the Legal Service of the Commission that the reverse distribution mechanism is incompatible with the legal framework established by the MMF Regulation. This opinion has already been sent to many market participants who requested to have access to it. I confirm that the Commission stands ready to share the opinion with any citizen and any natural or legal person upon request."
It adds, "As the MMF Regulation has been applicable to new funds (i.e. funds authorised after 20 July 2017) as from 21 July 2018, it is very important to ensure the consistent application of the MMF Regulation and to prevent divergent supervisory practices." (For more, see our Oct. 19 News, "Oct. MFI Profile: Highlights from European MFS: Irish Funds' Rooney," and our Sept. 5 News, "JPMorgan on European MMF Reforms; Aviva First to Convert to LVNAV." Watch for more News too from next week's AFP Conference in Chicago, which on Monday features a session on European MMF Reforms.)
Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Wednesday, which tracks a shifting subset of our monthly Portfolio Holdings collection. The latest cut, with data as of Oct. 26, includes Holdings information from 83 money funds (up from 64 on Oct. 19), representing $1.351 trillion (up from $1.085 trillion) of the $2.924 T (46.2%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our Oct. 11 News, "October MF Portfolio Holdings: Treasury, Agency Down; FICC Repo Up.")
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $505.5 billion (up from $413.1 billion on Oct. 19), or 37.4% of holdings, Treasury debt totaling $422.1 billion (up from $344.4 billion) or 31.2%, and Government Agency securities totaling $259.3 billion (up from $209.3 billion), or 19.2%. Commercial Paper (CP) totaled $63.1 billion (up from $46.3 billion), or 4.7%, and Certificates of Deposit (CDs) totaled $44.4 billion (up from $34.4 billion), or 3.3%. A total of $33.5 billion or 2.5% was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $23.2 billion, or 1.7%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $422.1 billion (31.2% of total holdings), Federal Home Loan Bank with $197.3B (14.6%), BNP Paribas with $69.2 billion (5.1%), RBC with $46.2B (3.4%), Federal Farm Credit Bank with $44.6B (3.3%), Credit Agricole with $33.8B (2.5%), ING Bank with $27.2 B (2.0%), Wells Fargo with $26.9B (2.0%), HSBC with $25.2B (1.9%), and JP Morgan with $25.1B (1.9%).
The Ten Largest Funds tracked in our latest Weekly Holdings update include: Fidelity Inv MM: Govt Port ($115.7B), Goldman Sachs FS Govt ($109.3B), BlackRock Lq FedFund ($82.5B), BlackRock Lq T-Fund ($70.9B), Wells Fargo Govt MMkt ($70.1B), Federated Govt Oblg ($67.2B), Dreyfus Govt Cash Mgmt ($57.5B), Goldman Sachs FS Trs Instruments ($54.8B), Morgan Stanley Inst Liq Govt ($48.0B), and State Street Inst US Govt ($44.3B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
