Fuelling MMF Growth in Asia Pacific
An Executive Interview with Paula Stibbe, Head of Global Liquidity Sales, Asia Pacific, J.P. Morgan Asset Management
In this edition, we are delighted to welcome Paula Stibbe, who took on the role of Head of Global Liquidity Sales, Asia Pacific at J.P. Morgan Asset Management earlier this year. As part of this move, Paula relocated from New York to Hong Kong, with regional offices in Shanghai, Singapore, Tokyo, and Sydney. In this interview, Paula talks with Helen Sanders, Editor, about some of the ways in which the regulatory environment is impacting on corporate investors’ cash investment strategies in Asia Pacific, particularly in their use of money market funds (MMFs).
How would you characterise the cash and liquidity marketplace in Asia Pacific?
Asia Pacific (APAC) is still a relatively new market for cash and liquidity solutions other than traditional bank deposits which typically have been the most popular investment solution for corporate investors. Since J.P. Morgan Asset Management founded its Global Liquidity business in APAC 10 years ago, we have been committed to offering a similar range of investment solutions to our clients consistent with the options available in other regions. While the larger proportion of our client base continues to be multinational corporations headquartered in North America and Europe, we are seeing a growing number of corporations headquartered in Asia developing more diverse investment portfolios, particularly as awareness of investment solutions such as MMFs and customised separate account solutions increases.
With China a key growth market for most multinational corporations, what trends are you seeing in the development of the MMF industry?
One of the challenges of doing business in Asia is dealing with the differing regulatory environments across the region; some countries are still more controlled than others, such as China. Although China is such a significant growth market for many of our clients, it has traditionally been difficult to repatriate cash, resulting in growing balances that are effectively ‘trapped’. While there have been recent regulatory developments to allow corporations to transfer cash offshore, such as changes to intercompany lending rules, attractive interest rates and a growing array of financial products make it desirable for corporates to leave cash onshore rather than repatriate. Consequently, corporations are increasingly seeking cash investment solutions that meet their stringent security and liquidity requirements, but also generate a competitive yield. This may be difficult to achieve using traditional investment instruments such as bank deposits, whose rates are set by the People’s Bank of China (PBoC) for multiple different maturities from overnight to five years. As a result, China’s path to interest rate liberalisation has created more investment opportunities beyond traditional state directed and proscribed interest rates.
With the ability to invest in China’s shadow banking market, MMFs are not subject to the same ‘ceiling’ as deposits, so investors are able to enjoy market-driven yields, with a tax exempt return. Furthermore, there are recent, highly significant changes in the nature of MMFs in China. Until recently, fund managers were only able to offer money market funds to institutional clients on a T+1 settlement basis. This regulation has now been relaxed allowing fund managers such as our joint venture, China International Fund Management Company (CIFM), to offer institutional clients same-day settlement on redemption via their most recently launched fund. While there is an impact on the yields that will be available through MMFs settled on a same-day basis, as investment managers will need to hold a larger proportion of cash, this is likely to be a major advantage for investors that are already accustomed to same-day access to liquidity using MMFs in other markets.