A week ago, Crane Data hosted its 7th annual European Money Fund Symposium in Dublin, Ireland, which attracted about 110 money fund and money market professionals from Europe, the U.S. and worldwide. For the keynote presentation, Patrick Rooney, Senior Regulatory Affairs Manager of Irish Funds, the trade group representing mutual funds domiciled in Ireland, discussed, "Money Market Funds in Ireland." He told attendees, "Assets [of money funds domiciled in Ireland] are at E491 billion. There's been significant growth since 2014 and more modest growth more recently. We are fast approaching the E500 billion mark, so half a trillion in assets. It's a very significant MMF industry here, third in the world after the USA and China. Ireland has further cemented its position as the lead MMF domicile in Europe with Luxembourg next and France rounding out the top three locations."
Rooney continued, "Retail is tiny.... In terms of the investor base, it is very U.K. focused.... We have new data from the Central Bank of Ireland which indicates that 57% of the assets ... are held by U.K. investors. That is on a first counterparty basis, so it maybe doesn't take into account the intermediate nature of a lot of the distribution on the MMF side. People may be coming through platforms and actually resident elsewhere. But nonetheless that's a very significant portion. The next biggest segment is the U.S. and then Ireland. It's unusual for Ireland to feature so prominently in the investor base given the cross-border international nature of our investment funds. That is largely [due] to the presence of some very large U.S. multinationals here who are using the MMFs."
He commented, "Over a 5-year period back to 2014, debt securities comprised the largest part of the portfolio, unsurprisingly. But there has been an evolution. They've gone from 63% of the portfolio in 2014 to 45% today.... Securities financing, which I understand would be the reverse repos under the Central Banks' reporting terminology, has been growing in proportion which is quite interesting over the years. That's gone from E33 billion to E116 billion, so quite significant growth there. I guess MMFs are increasing their liquidity levels and increasingly using reverse repo, perhaps in anticipation of money market fund reform. It certainly doesn't show any major shift at the point of implementation of MMFR.... Certainly, it demonstrates that there is a high level of liquidity in MMFs, well in excess of the regulatory thresholds that are applied under the MMFR."
Rooney also said, "If you look at the currency breakdown, the U.S. dollar is obviously the most popular currency denomination for assets, followed by GBP. Euro has held steady, which is very interesting given the situation that we have in regard to RDM and negative yield. Despite all of that and the operational disruption or impact to investors, the assets have actually grown in the euro segment, from 76 billion to 80 billion. That's good to see, that there hasn't been any lasting impact in relation to all of that."
He continued, "Looking in more detail now at the product lineup ... we got this data recently from the Central Bank.... All three product categories are available, the low volatility NAV the variable NAV -- I don't have a breakdown of short-term vs. standard -- and public debt constant NAV.... LVNAV is the winner with a strong offering of 47 funds. I think we had expected that as the successor products for prime institutional CNAV, with the features that those kinds of investors are looking for -- with stability in the NAV and some yield as well. Next is variable NAV. There's more variable NAV in Ireland than there was before MMFR reform. I think maybe that's reflective of promoter's desire to offer the full suite of products post MMFR reform and make them available to investors and let investors decide which one would suit them best. Public Debt CNAV has transitioned over. There is obviously, you know, a defined market for that which is of a certain size, so 25 public debt CNAV funds."
Irish Funds' Rooney stated, "When we look to see how the assets are aligned, there's quite a shift. Investors have voted with their feet and have largely voted for low volatility NAV MMF, which is the predominant type of MMF category in Ireland. That is what we had expected and hoped would happen in terms of the popularity of that product, because it meets the needs of those CNAV investors. So, E405 billion in low volatility NAV MMF. The public debt NAV moves to the next most popular type of product category, so that has largely transitioned across. Then variable NAV is very small relative to the other two categories at 22 billion.... What this demonstrates is the market for VNAV remains quite limited.... Stability is the name of the game."
He also said to the Dublin crowd, "Looking at some of the live issues, I've just selected three that MMF managers are facing at the moment. Brexit planning is obviously one of them. UCITS managers ... are typically the type of entity that manage MMF.... They would have UCITS passports anyway, so access to the European market was not a major issue. What we have seen is MMF fund managers, just like other fund managers, adding resourcing to their existing management companies and using Ireland more as a home, as their investment fund hub in Europe."
On Brexit's impact, Rooney told us, "The continued distribution of Irish MMFs into the U.K., to access that very large U.K. investor base is clearly of critical importance to us and of long-term strategic importance. An arrangement is negotiated there and the temporary permissions regime has been very helpful in the medium term, and we look forward to a lot more long-term resolution in relation to distribution. I think right now the focus is on the potential, the very real potential, for a hard Brexit and planning for that. A lot of engagement is going on between industry and the Central Bank in relation to the plans for that and resourcing fund administrators for example, to deal with any market fallout and market impact that may arise."
He added, "Moving on to MMF regulatory reporting and stress testing, ESMA finalized their reporting and stress testing guidelines back in July.... They have rolled back on some additional data requirements that were based on the AIMFD and less relevant, really to the reporting in terms of an MMFs.... But there is still a need for a big data build on this, and MMF managers are in the process of rolling that out with their fund service providers. We are engaging with the Bank on that rollout and discussing any potential additional requirements that the Central Bank might impose over and above the MMFR template. So that is ongoing."
Rooney continued, "ESMA did release liquidity stress testing guidelines as well, in response, I suppose to concerns over Woodford, for liquidity and open-ended funds, which I don't think is an issue for MMFs.... ESMA did take that into account and has limited the scope to aspects that are not covered under the MMFR and identified those aspects which should be helpful. In the case of a conflict between MMFR and ESMA liquidity stress testing guidelines, ESMA has stated that the MMFR rules will take precedence."
Finally, he said, "A word on sustainability.... This is coming very quickly. I think it's almost unprecedented the pace and the level of detail coming out from the European Commission and European Institutions. In the next two to three years, really, we'll have a very detailed framework on sustainability which will aim to reorient capital flows towards more sustainable investment products, increase transparency and disclosure and harmonize standards in relation to the disclosure of sustainability, and also result in sustainability factors being integrated into the risk management of funds.... It's a very active area and one where I'm sure MMFs can use their market power as well in order to influence behavior at issuers in relation to ESG factors."
