HSBC Global Asset Management is the latest money market mutual fund manager to enter the ESG space, filing a Form N-1A (485APOS) to launch HSBC ESG Prime Money Market Fund. The new fund will include the following share classes: Class D (HEDXX), Class I (HEIXX), Intermediary Class (HEGXX), Intermediary Service Class (HETXX) and Class Y (HEYXX). The filing explains, "The Fund is a money market fund. The Fund seeks to achieve its investment objective by investing in a portfolio of high quality debt obligations with maturities of (or deemed maturities of) 397 days or less and repurchase agreements collateralized by these types of obligations. The Fund will maintain a dollar-weighted average portfolio maturity of 60 days or less and a dollar-weighted average portfolio life of 120 days or less."
It continues, "The Fund invests in high quality debt obligations that have been determined by HSBC Global Asset Management (USA) Inc., the Fund's investment adviser, to present minimal credit risks to the Fund. In determining whether a security presents minimal credit risks to the Fund, the Adviser will analyze the capacity of the security's issuer or guarantor to meet its financial obligations and other factors."
HSBC's N-1A tells us, "The Adviser will also use a proprietary scoring system to assign an ESG score to each potential investment. The ESG score measures the performance of an issuer or guarantor's business operations and governance based on select ESG criteria deemed to be material by the Adviser. Potential investments are evaluated and scored on a relative basis against other issuers and guarantors in the same sector and on an absolute basis for compliance with the principles outlined in the United Nations Global Compact in the areas of human rights, labor, the environment and anti-corruption. The proprietary scoring system seeks to provide a more comprehensive approach to security selection than credit analysis alone."
It says, "Although the Fund must invest, under normal circumstances, at least 80% of its net assets, plus any borrowings for investment purposes, in debt obligations whose issuer or guarantor, in the opinion of the Adviser, meet the minimum ESG criteria determined by the Adviser at the time of purchase, the Fund generally expects to invest all or substantially all of its net assets in these investments. Once a security is purchased, the Adviser will periodically review an issuer or guarantor's ESG score to determine how it compares to the Adviser's ESG criteria and affects the Fund's overall ESG orientation."
The filing also comments, "The Fund invests primarily in bank certificates of deposit, time deposits, bankers' acceptances, prime commercial paper, corporate obligations, municipal obligations, U.S. government securities and repurchase agreements collateralized by U.S. government securities. The Fund's investments may also include variable rate demand notes and repurchase agreements secured by collateral other than cash and U.S. government securities, including equity securities and investment grade debt securities, to the extent permitted by Rule 2a-7 under the Investment Company Act of 1940, as amended."
HSBC explains, "The Fund may invest without limit in the domestic banking industry when, in the opinion of the Adviser, the yield, marketability and availability of investments meeting the Fund's quality standards and the Adviser's ESG criteria in such industry justify any additional risks associated with the concentration of the Fund's assets in the industry. The Fund may also invest without limit in commercial paper and short-term corporate obligations of domestic financial institutions. The Fund may also make investments in U.S. dollar denominated commercial paper and other obligations of foreign issuers and in bank certificates of deposit and bankers' acceptances payable in U.S. dollars and issued by foreign banks or by foreign branches of U.S. banks."
The section states, "The Fund seeks to maximize yields by portfolio trading and by buying and selling portfolio investments in anticipation of or in response to changing economic and money market conditions and trends. Additionally, the Fund will seek to take advantage of temporary disparities in yields of different segments of high-grade money market instruments or among particular instruments within the same segment of the market. In purchasing and selling securities for the Fund, portfolio managers consider the Adviser's credit analysis and the Adviser's ESG criteria. Portfolio managers select investments from an approved credit list compiled by the Adviser's global credit analysts, who have conducted an independent qualitative and quantitative review of each issuer on the list. Safety is prioritized, with additional emphasis placed on liquidity, yield and the Adviser's ESG criteria."
HSBC adds, "Although the Fund is a money market fund, the net asset value ('NAV') of the Fund's shares will be calculated to four decimal places and will fluctuate with changes in the values of the Fund's portfolio securities."
Under the "Investment Risks" section, they write, "ESG Investing Risk: The incorporation of the Adviser's ESG criteria into the investment process may cause the Fund to forgo investment opportunities available to funds that do not use these criteria, or to increase or decrease its exposure to certain sectors or types of issuers, which could cause the Fund to perform differently compared to funds that do not consider ESG criteria in the investment process. In evaluating an issuer or guarantor, the Adviser is dependent upon information and data that may be incomplete, inaccurate or unavailable, which could adversely affect the analysis of ESG criteria relevant to a particular issuer or guarantor. Investing on the basis of ESG criteria is qualitative and subjective by nature and there can be no assurance that the process utilized by any third-party data providers or any judgment exercised by the Adviser will reflect the beliefs or values of any particular investor."
The filing shows that the Management Fee will be 0.10% for all classes, and the Shareholder Servicing Fees are listed as 0.25% for Class D; 0.00% for Class I; 0.05% for Intermediary Class; 0.10% for Intermediary Service Class; and 0.00% for Class Y. The Total Annual Fund Operating Expense is to be determined. The Minimum Initial Investment for Class D Shares is $1,000 for Class I Shares $50,000,000, for Intermediary Shares $20,000,000, for Intermediary Service Shares $10,000,000 and for Class Y Shares $5,000,000.
In related news, a recent Statement of Additional Information filing for DWS ESG Liquidity Fund reveals some of the owners of ESG funds in its "5% or Greater Ownership of Share Classes" table. These include for the Capital Shares: DWS Enhanced Commodity Strategy Fund (43.22%), DWS GNMA Fund (27.27%), XTrackers MSCI EAFE Currency Hedged Equity ETF (15.37%) and Northern American Development Bank (10.89%). For the Institutional Reserve Shares: JPMS LLC – Chase Processing FBO Starbucks Corporation (96.14%); for the `Institutional Shares: Xylem Inc (22.32%), The Starbucks Foundation (21.18%) and ShelterPoint Life Insurance Co (20.46%).
Crane Data currently shows 5 ESG MMF Portfolios with a total of $6.4 billion, and another 2 Social MMF Portfolios with another $6.5 billion. The ESG funds include (largest share class only is listed with total portfolio assets): BlackRock LEAF Direct (LEDXX, $994M), DWS ESG Liquidity Inst (ESGXX, $565M), Morgan Stanley Inst Liq ESG MMP I (MPUXX, $3,886M), State Street ESG Liq Res Prem (ELRXX, $879M) and UBS Select ESG Prime Inst Fund (SGIXX, $30M). (Pending: HSBC ESG Prime MMF.) Social MMFs include: Dreyfus Govt Sec Cash Instit (DIPXX, $4.7B), Goldman Sachs FS Fed Instr Inst (FIRXX, $1.8B). Note: Federated, Goldman Sachs and J.P. Morgan also all have ESG principles built in complex-wide at the analyst level (so they might argue that all their funds are all "ESG" funds).
For more on ESG and Social Money Market Funds, see these Crane Data News articles: Fitch Ratings, ICD Host Webinars on ESG Money Funds, Cash Investing (2/6/20), Goldman Launches Social Class; Tiedemann Adds FICA; CS Green ABCP (1/24/20), Mischler Financial Joins "Impact" or Social Money Market Investing Wave (12/5/19), BNP Insticash Adds ESG Overlay (11/29/19), Dreyfus Launches "Impact" or Diversity Government Money Market Fund (11/21/19), Goldman Adds ESG Screen (11/14/19), Aviva Investors Discusses ESG MMFs; Fitch Rates MS ESG (11/6/19), UBS Asset Mgmt Files to Launch Select ESG Prime Institutional Fund (11/4/19), BlackRock Launches First Offshore ESG MMF; ICS LEAF in EUR, GBP, USD (7/22/19), SSGA Goes Live with ESG Money Market Fund (7/3/19) and Cap Advisors Group Demystifies ESG Investing (6/19/19).
