The Way Ahead for Money Market Funds
An interview with Travis Barker, Head of Business Development, HSBC Global Asset Management
How have you seen corporate demand for MMFs change over recent months?
HSBC Global Asset Management is somewhat unusual amongst providers as we offer MMFs across all major markets based on our strong global presence and local expertise in each market. These include the United States, Caribbean, French domestic funds, and funds in various smaller currencies such as HKD, INR, SAR, as well as offshore funds in Europe. During the first part of 2009, we saw treasurers continuing to build up cash levels due to continuing concerns about the borrowing environment. With market liquidity returning, but with ultra-low interest rates remaining, we have seen recent net outflows from MMFs across the industry of around 11.7% since June 2009, although HSBC has seen continued robust growth across our MMF business with a 1.9% increase in assets over the same period.
However, these statistics mask some interesting trends. Firstly, we have seen treasurers’ confidence in ‘prime’ MMFs (i.e., those that invest in financial institution and corporate assets) return, which reflects a more balanced view of risk than we saw during 2008 when government funds took precedence. For example, since June 2009, USD government funds have fallen by over 28% and EUR government funds by more than 26%. In contrast, ‘prime’ offshore MMFs have seen a net increase which is particularly apparent in EUR funds which have grown by over 20% over this period. Secondly, despite low interest rates, treasurers are not chasing yield. For example, although we have witnessed a net outflow from some MMFs, this is not matched by an equivalent inflow into enhanced funds. For example, in France, while there has been a drop in ‘regulaire’ funds of over $39bn, ‘dynamique’ or enhanced funds have grown by only $7bn. It is a positive sign that treasurers have not forgotten the lessons learnt during the crisis and have found an appropriate balance in their cash investment approach.
What developments have you seen in the introduction of funds in new currencies?
In general, non-core currency funds tend to be local funds that could be targeted at either institutional or retail investors. With low interest rates globally, it has not been the right time to launch new funds, although this is likely to happen as interest rates rise. There are other factors influencing the introduction of new funds, however, in addition to low interest rates. For example, government intervention to support the banking industry in many countries has created market distortion which makes it difficult to assess risk objectively. Furthermore, in countries such as India and China, currency controls mean that funds in these currencies are essentially restricted to domestic investors. Overall, over such a volatile and eventful period, both fund providers and investors have kept their portfolio of funds simple, and focused more on international funds in core currencies as opposed to reaching further into local funds.