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Institutional demand drives China's money fund market
By Fitch Ratings |
May 10, 2012, Thursday
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Print Edition
Print Edition
RISING demand from institutional investors contributed to a further concentration of the market for Chinese money market funds in the first quarter of 2012. But it also helped reduce the fund-flow volatility normally seen at the end of the first quarter. The increasing role played by institutional investors should bring more balance to the market in the longer term.
Market concentration among the largest 10 management companies in the money market fund sector rose to 72 percent (from 63 percent at end-2011) and assets at those companies rose about 38.2 billion yuan (US$6.1 billion), according to Fitch's calculations, while smaller managers on balance saw their assets under management decreasing.
We believe the increase in market concentration highlights the importance that institutional investors place on managers having the necessary experience, fixed-income resources and credit research capability.
Although the overall number of funds remained unchanged in the quarter, three funds added B-class offerings which are designed to meet the needs of institutional investors. While money market fund assets in A-class offerings provided to retail investors shrank by more than 14 billion yuan to 165.7 billion yuan, assets under management in B-class offerings rose almost 17 billion to 131.4 billion yuan, according to Fitch's calculations.
This rise in demand from institutional investors helped the overall asset base for money market funds to remain broadly stable in the first quarter.
This is unusual for the generally volatile asset base of money market funds, which is driven by the short investment horizon and a less systematic asset allocation approach of retail investors. This volatility is normally compounded by a seasonal product push towards year-end by managers, a practice increasingly scrutinized by the regulatory authority.
Further growth on the institutional side of the market should reduce volatility in the long term. However, if the investment climate for riskier assets such as equities continues to improve from the low levels at end-2011, there could be more redemptions from money market fund investors and a return of higher volatility in the short term.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Market concentration among the largest 10 management companies in the money market fund sector rose to 72 percent (from 63 percent at end-2011) and assets at those companies rose about 38.2 billion yuan (US$6.1 billion), according to Fitch's calculations, while smaller managers on balance saw their assets under management decreasing.
We believe the increase in market concentration highlights the importance that institutional investors place on managers having the necessary experience, fixed-income resources and credit research capability.
Although the overall number of funds remained unchanged in the quarter, three funds added B-class offerings which are designed to meet the needs of institutional investors. While money market fund assets in A-class offerings provided to retail investors shrank by more than 14 billion yuan to 165.7 billion yuan, assets under management in B-class offerings rose almost 17 billion to 131.4 billion yuan, according to Fitch's calculations.
This rise in demand from institutional investors helped the overall asset base for money market funds to remain broadly stable in the first quarter.
This is unusual for the generally volatile asset base of money market funds, which is driven by the short investment horizon and a less systematic asset allocation approach of retail investors. This volatility is normally compounded by a seasonal product push towards year-end by managers, a practice increasingly scrutinized by the regulatory authority.
Further growth on the institutional side of the market should reduce volatility in the long term. However, if the investment climate for riskier assets such as equities continues to improve from the low levels at end-2011, there could be more redemptions from money market fund investors and a return of higher volatility in the short term.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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