This month, MFI speaks with Jonathan Curry, Global CIO for Liquidity and CIO, Americas for HSBC Global Asset Management. The firm recently filed to launch an ESG money fund in the U.S., and it continues to be a major player globally and in a number of emerging markets. We discuss their funds, the latest money market developments and a number of other issues below. (Note: The following is reprinted from the March issue of Money Fund Intelligence, which was published on March 6. Contact us at info@cranedata.com to request the full issue or to subscribe.)
MFI: Give us a little bit of history. Curry: We've been running money funds for over 25 years in a very broad range of currencies. We treat liquidity as an asset class in its own right, so we've got dedicated investment professionals, client service teams, distribution teams, product teams, all focused on this asset class. Liquidity represents around 20 percent of the AUM ... of HSBC Global Asset Management. It's a very important part of the of the asset management franchise here at HSBC. I joined HSBC in 2010, as the Global Chief Investment Officer for Liquidity. I moved to the U.S. in Q'3 2016, to take on the additional responsibilities that I have today. Prior to joining HSBC, I was at Barclays Global Investors.
MFI: Tell us about the fund lineup. Curry: For liquidity, we finished 2019 with just under $100 billion, $98.1 billion to be precise. We manage liquidity solutions in 11 currencies globally, which is one the widest breadth of currencies of any manager. It covers both developed and emerging market currencies. We have offerings in U.S. dollar, in sterling, in euros, which are where the bulk of the assets that we have are managed. In Asia, we have Hong Kong dollar funds, RMB, Australian dollar, Taiwan dollar and Indian rupee. In addition to sterling and euros in Europe, we have Turkish lira. In the Americas, in addition to US dollars, we have a Canadian dollar offering and an Argentinian peso offering.
The flagship funds are our European-domiciled, Dublin-based Global Liquidity Fund range and our [U.S.] '40-Act range. That houses a good percentage of the AUM that we manage. Within the Global Liquidity Fund range we have U.S. dollar, sterling, euro, Canadian dollar and Aussie dollar. In the US, we have a Government fund and a Treasury fund. We have just under a $5.5 billion U.S. dollar equivalent in Hong Kong. That's the largest currency outside of the three main currencies.... We're the only money fund in Hong Kong dollar that is triple-A rated and offers same-day settlement.
MFI: What's your biggest priority? Curry: There are a number of priorities that we have for 2020. Firstly, we want to continue to grow the business. We saw some good growth in 2019 particularly, and we'd like to see that continue into 2020 and beyond.... In our U.S. government 2a-7 money fund, we've seen growth in both assets and market share. In 2019, we were the second highest percentage increase in assets of the top 20 money fund providers in the U.S. We were up 48% across the U.S. domestic platform in 2019, in both money funds and separately managed accounts. We also saw some good growth in Europe, in the flagship global liquidity fund range and we added several separately managed accounts globally.
ESG is another one. We already have a strong track record and credentials in ESG integration in our existing investment processes, and we're a leading provider of liquidity solutions globally. So we're working towards combining these two capabilities to deliver ESG liquidity products to our clients. As part of that strategy, for the existing funds that we already have in the market, we're going to be further emphasizing and demonstrating how ESG factors are integrated into our existing credit and investment process; we're going to be providing more information to clients to help them better understand how we've factored ESG considerations into our existing funds. But they will not necessarily be branded 'ESG funds' per se.
We're also looking at whether to introduce ESG specific products where the client demand exists for that type of solution. [W]e will be using client feedback to [select] specific criteria that will help define the investable universe for specifically-labelled ESG money market funds. That investable universe may differ from [those of] 'vanilla' money market funds. [W]e believe we can be clearer on what ESG criteria does and does not apply to an ESG money fund solution. (See Crane Data's Feb. 19 News, "HSBC Files to Launch ESG Prime Money Market Fund; Proprietary Scoring" and HSBC's new fund filing for more.)
We have clearly a very broad range of money market fund solutions across a wide range of currencies and markets. But we are also looking to expand our fund range, both in the standard money fund space in Europe and in the ultrashort duration space. We're also in the process of enhancing our existing HSBC Liquidity Portal. We have an existing offering today, which supports our own funds for HSBC clients. We are working to upgrade and enhance the functionality to allow clients more seamless access to the existing fund families on that platform and expand the offering to other HSBC fund ranges globally. We are targeting launch in late 2020.
Then more broadly, we're responding to regulatory change in the different markets that we operate in. The LIBOR transition is an example of that. We've been spending time thinking about these implications ... and making sure that not only are we prepared for that change, but our clients are too.... That's the focus for us in 2020 and 2021.
MFI: What's your biggest challenge? Curry: I think negative rates are a challenge, there's no point in denying that. But the challenge really is when a rate pivots from a positive or zero rate to a negative rate. It's that transition period that really is the biggest challenge. Once that has happened and stabilized, our experience is that investors will continue to think about this in the same way, [asking] 'What does the money fund offer to me from a return perspective relative to other solutions they have?' They'll factor in the efficiencies of using the money market fund, the benefits of diversification, etc.
I think one of the biggest challenges of managing cash globally [is] delivering a globally consistent investment process, but factoring in local money market nuances and also local regulation. What we want to be able to offer clients is the comfort that if they’re investing in any currency that we have on our platform, they know that there is a consistent philosophy and a consistent investment process.
MFI: What are you buying? Curry: I think we are pretty consistent with the rest of the money fund market in terms of the types of instruments that we're using in different locations. Certainly repo is a key instrument type for us in the U.S.... We also make use of it for our European domiciled range, particularly for the U.S. dollar fund within that range, but also at times with other currencies. The repo markets in some of the other markets that we operate in are non-existent or less developed. We do use them in India and China.... Typically deposits are pretty critical in some of the markets where repo doesn't exist. And then [there are] also other familiar money market instruments, such as certificates of deposit and commercial paper.
MFI: How about customer feedback? Curry: There are quite a few things that we're hearing from customers.... They're looking for ideas and solutions [and looking] for ways to optimize the use of their cash.... They're interested in understanding how asset managers manage sustainability factors within their fund ranges. They're looking to understand, measure and assess variances in risk across fund providers in a post-reform world. One of the things regulation has done, particularly in European domiciled funds, is change approaches and risk between different managers. On the surface they may not be obvious to the end investor, but it is important that those risks are understood.
They're also continuing to look for ways to invest restricted cash.... They're looking to improve cash forecasting [which] allows them to open up opportunities to segment cash and explore longer duration options. This makes a lot of sense in the current environment, and clearly technology is playing and will continue to play an important part in how investors access money market funds and how they get information on money market funds.
We've always had to be very close to our clients, whether those clients invest in our funds directly or whether they invest via a third party. We've always needed insight into our clients, who they are, how they operate. That is a very critical part of liquidity risk management. So, whilst the regulation puts a more explicit prescription around recognizing that money funds should know their clients ... it's something we've always done.
MFI: Anything to add on China? Curry: China is clearly now a very important market for money market funds globally. Their significant growth has been due to the domestic retail client base. Our focus has been on global institutional or multinational clients that have operations in China that are looking for a solution from a manager that they work with already.... That's the market that we've targeted and been successful in growing.... We expect to see continued growth in that market, both in our offering and also in the market more broadly. There's been a number of iterations of regulatory change, which we're very supportive of and which I think is good for the industry.
MFI: What about negative rates? Curry: In terms of rates, I think our view is pretty consistent with the market -- lower for longer in the majority of markets that we operate in, which includes negative rates in the case of euros. From a credit perspective, in terms of the approved issuance that we operate off of, we're broadly comfortable with credit ... again in the majority of the markets that we operate in, particularly in developed markets. There are one or two markets that we operate in where we've probably de-risked from a credit perspective because of a concern of potential further credit deterioration. India would be an example of that. But otherwise we're broadly comfortable in credit at the moment.
MFI: What's your outlook? Curry: I think the regulation that has been enacted in pretty much all the markets we operate in post-global financial crisis makes this industry stronger. I think part of the reason why we continue to see growth in money market funds globally, whether it's in our own suite of products or whether it's in the industry more broadly ... is because the regulation has given investors even more confidence in money market funds as a fantastic tool to invest short term cash.
The benefits of a money market fund generically that we all know and love ... have not changed. You've got the same features, the same benefits that have always existed in money market funds, in arguably, a better risk-controlled framework as stipulated by the regulation. I think that's been positive for the industry, and I think those factors will continue to support growth in the industry for hopefully many years to come.
