Over the past several weeks, we've quoted from a number of comment letters to the Financial Stability Board in response to the FSB's "Policy proposals to enhance money market fund resilience: Consultation Report". These include statements from J.P. Morgan Asset Management, BlackRock, Fidelity, Federated Hermes, Charles Schwab, BNY Mellon, Vanguard and SSGA, as well as letters from the ICI, ABA and others. Today, we quote from a few more, including comments from U.K. and France-based asset managers HSBC Asset Management, BNP Paribas, Amundi and Aviva Investors. Jonathan Curry, who will speak on "European, ESG and Corporate Issues" at our upcoming Money Fund Symposium in Philadelphia (Sept. 21-23), writes in, "HSBC Asset Management Response to FSB Policy Proposals to Enhance Money Market Fund Resilience," "HSBC Asset Management is HSBC's core investment business dedicated to managing assets for institutions and individuals worldwide, with USD612.4 billion in total assets under management."
Curry continues, "As part of the HSBC group, we have local liquidity expertise across both core and emerging markets, with Liquidity assets accounting for USD 133.0 billion (or 21.7% of HSBC Asset Management's total assets under management). We have more than 25 year's experience in management money market assets, and operate global and local funds across 10 currencies with investment professionals located around the world. This includes funds domiciled and regulated in Europe, the Americas and Asia. We operate LVNAV (in Europe), CNAV and VNAV funds, in both credit and public debt strategies."
He explains, "HSBC Management treats Liquidity management as a separate discipline and has allocated dedicated resources accordingly. There are teams of portfolio managers, credit analysts, risk managers and client service teams focused on our Liquidity business. This focus, and deep experience managing a wider range of fund types, across a number of different markets, means we are well positioned to understand the needs of our investors and the markets in which we operate."
Currey says, "We are pleased to have the opportunity to respond to this important consultation. We are supportive of any and all efforts to consider potential policy measures to improve the resilience of MMFs and short term funding markets. We have carefully considered the presentation of vulnerabilities and each of policy proposals set forth in your report and provided responses below. We are happy to support continued engagement with you on this report."
He states, "Our experience with our client base was that investors were solely focused on our funds WLA levels. The 'bright line' of 30% weekly liquid assets ('WLA') that was created by US regulation and the linkage of the level of WLA to the need for a Fund's Board to consider the implementation of a liquidity fee or gate was the major driver of investor focus on this level.... The fund construct (Public Debt Constant Net Asset Value PDCNAV, Low Volatility Net Asset Value LVNAV, Variable Net Asset Value VNAV) was not a factor in whether a MMF faced challenges due to redemptions. In some cases, both VNAV and LVNAV MMFs faced heightened redemptions. It is worth noting that where heightened redemption activity did occur it tended to be currency specific. For example, in the case of LVNAV funds it was focused in some USD funds and in the case of VNAV funds it was focused in some EUR funds."
The letter from BNP Paribas tells the FSB, "BNP Paribas welcomes the opportunity to comment the FSB's consultation on Policy Proposals to Enhance Money Market Fund Resilience. We will mainly focus in our response to this consultation from a Euro-denominated VNAV MMF perspective, as almost all our funds are French MMFs of VNAV type. BNP Paribas Asset Management (the asset management division of the BNP Paribas Group) has €72bn of MMFs under management as of 31 December 2020 with the following breakdown: €46bn in French MMFs all of VNAV type, €26bn in Luxembourg MMFs of which GBP2.2bn and USD1.5bn for the LVNAV MMF type."
They explain, "During the COVID crisis, French Euro-denominated VNAV MMFs managed the outflows and proved resilient despite important redemptions, especially in March 2020 (-52.4bn euros). This is clearly explained in the French regulator AMF's 2020 Markets and Risk Outlook. This report also indicates that despite the significant net outflows in March 2020, inflows resumed as soon as May 2020. Overall, over the first 8 months of 2020, inflows amounted to +48.6bn euros. Another important fact is that, unlike the 2008 episode, no complaint was expressed with regard to the composition of the portfolios of French MMFs, especially in terms of the quality of assets. Indeed, French VNAV MMFs have demonstrated that they are safe and resilient in their construction and composition."
BNP adds, "As complementary information, French VNAV MMFs are subscribed mainly by institutional investors. They are used by investors as short-term investment vehicles that offer returns in line with money market rates by placing monies in short-term assets. They constitute an appreciated alternative for cash management allowing investors to diversify their counterparty risk. They are also easy to use and offer same day liquidity. At quarter end for instance, their outflows are generally important and are dealt in anticipation in a business-as-usual manner by asset managers. Indeed, MMFs have cyclical and anticipated redemptions (which might amount to as much as 20%) that are managed without difficulty. An efficient KYC permits discussion with the investors so as to anticipate redemptions for which the manager is preparing the necessary liquidity in advance. During the crisis, the need for cash expressed by some of them, especially corporates, amounted to high levels of redemptions from MMFs. As they are most liquid investment funds, they were naturally used in priority compared with other types of assets, even if the redemption was high almost in all asset classes."
A comment from Amundi says, "Amundi is the European largest asset manager by assets under management and ranks in the top 10 globally. It manages 1,729 billion euros of assets, as of end of 2020, across six main investment hubs in Boston, Dublin, London, Milan, Paris and Tokyo.... Amundi is also a leading and longstanding actor in managing liquidity funds, with 222 billion euros of assets as of end of 2020, out of which 180 billion euros of money market funds (MMFs) domiciled in the European Union, thus following the European Money Market Fund Regulation (MMFR). Amundi is notably the world largest manager of euro-denominated MMFs, with 175.4 billion euros of assets as of end of 2020. Most MMFs under its management belong to the VNAV (Variable Net Asset Value) type category and are domiciled in France. It also operates in the LVNAV (Low Volatility NAV) MMF market by offering two Luxembourg-domiciled funds, AAA-rated and denominated in euro and USD respectively."
It states, "[T]here is, in our view, a considerable risk in assessing that MMFs were the trigger of this liquidity crisis while they only revealed it. Accordingly, considering that the recently-applied MMF regulations need to be deeply reformed will contribute to missing the target. In this respect, while the report provides i) a useful and detailed description of MMF market and regulatory environment and ii) a fair analysis of interactions between MMFs and STFMs, we would like to share some concerns over the tonality of the report. Indeed, the report refers to MMF vulnerabilities that would have emerged from the Covi19 crisis, while we do consider that the difficulties MMFs encountered in March 2020 mainly stemmed from a disruption in the functioning of STFMs. Our perception is that the report underestimates the potential options that could be explored to improve the liquidity of STFMs, especially under stressed conditions. On this respect, we think that a lot can be achieved, on both player and instrument areas. Similarly, the report devotes a disproportionate share to the different options that are supposed to address MMF vulnerabilities: some of these options are unrealistic or potentially dangerous for MMFs' very existence."
Finally, outlier Aviva Investors writes, "We consider that moving away from the concept of constant and low volatility NAV and making funds free floating would be the most effective policy option. From our experience during the crisis, there were still some bids for commercial paper, but the prices were very unattractive. A variable NAV fund would be better placed to be able to accept those prices, sell the stock and move on. The real concern here is the treatment of such a fund with regards to cash and cash equivalence."
