The Wall Street Journal featured an article entitled, "Meet Earth's Largest Money-Market Fund." Subtitled, "Alibaba Spinoff Yu'e Bao has accrued 370 million account holders and $211 billion in assets in just four years. As its model is replicated, the government is enforcing new regulations," It says, "In just four years, a money-market fund created by an affiliate of China's Alibaba Group Holding Ltd. has become the world's largest, providing millions of the country's savers a high-returning place to park their money. Now, it is facing pressure from regulators to slow down." We excerpt from the Journal's piece below. (See also our Sept. 6 News, "FT Says Chinese Issue New Rules on Money Funds, and note that our upcoming European Money Fund Symposium (Sept. 25-26 in Paris) will feature a segment on "MMFs in Asia: China and Japan.")
The WSJ writes, "Fueled by contributions from some 370 million account holders, the fund, known as Yu'e Bao -- which means "leftover treasure" -- has grown rapidly to manage $211 billion in assets. It is more than twice the size of the next largest money-market fund, a U.S. dollar liquidity fund managed by J.P. Morgan Asset Management, according to data from Morningstar Inc. Yu'e Bao's assets doubled in the past year alone, and the fund now makes up a quarter of China's money-market mutual fund industry."
Note: Crane Data shows the largest U.S. money fund portfolios as: JPMorgan US Govt MM Agency (OGAXX) at $139.8 billion (as of 8/31/17); Fidelity Govt Cash Reserves (FDRXX) at $134.0B; Fidelity Inv MM: Govt Port I (FIGXX) at $99.7B; Vanguard Prime MMF (VMMXX) at $96.8B; and Goldman Sachs FS Govt Admin (FOAXX) at $88.4B.
The article continues, "Its ascent has been an accidental byproduct of a sharp shift among Chinese consumers toward mobile payments. Yu'e Bao draws its funds from users of Alipay, an electronic-payments platform used by roughly a third of China's population to make purchases on Alibaba's e-commerce sites and to pay for everything from cinema tickets to household bills. In some ways, Yu'e Bao's surge to prominence shows how diverse and dominant Alibaba and its affiliates have become in recent years."
The Journal tells us, "Ant set up Yu'e Bao as a place for Alipay users to park idle cash sitting in virtual wallets they control with their smartphones. The company never intended, or expected, Yu'e Bao to become as large as it did so quickly, according to a person familiar with the matter. Attracted by the fund's generous returns -- Yu'e Bao's investments currently produce a 7-day annualized yield of 4.02% -- some investors have been sending chunks of their monthly paychecks to it, another reason for its growth. A year ago, the fund's yield was 2.3%, according to Tianhong Asset Management Co., an Ant subsidiary that manages the fund."
They add, "Yu'e Bao's short-term yield dwarfs the 1.5% interest rate on one-year Chinese bank deposits and even beats the 3.6% yield on 10-year Chinese government bonds. The fund invests most of its money in certificates of deposits issued by Chinese state-owned or state-supported banks. It also holds government bonds, bank-issued bonds and commercial paper. Data reviewed by The Wall Street Journal indicates Tianhong boosted Yu'e Bao's returns in recent years by increasing its allocation of funds to financial instruments with longer maturities.... About 40% of Yu'e Bao's investments mature in under 60 days, versus over 60% four years ago, according to Tianhong's reports."
The WSJ article explains, "China's money-market fund industry has swelled in recent years, partly because of loose regulation. The first Chinese money-market fund was launched in 2003, and similar funds for years were marketed mainly to wealthy individuals and institutions. Following the formation of Yu'e Bao, which lets people open accounts with as little as 1 yuan ($0.15), the industry has grown exponentially as other similar funds have sprouted up to attract retail investors' money."
It states, "The surge is making Chinese regulators nervous. In March, China's securities regulator called for "significantly stronger" risk controls at money-market funds to "prevent systemic risks caused by large-scale redemptions.... In early September, regulators issued new liquidity rules requiring money-market funds to boost their holdings of higher-quality assets, such as short-term debt securities, that carry top credit ratings. The regulator also labeled money-market funds as "systemically significant" and instructed them to curb their exposure to individual financial institutions. The new rules take effect on Oct 1."
The piece also says, "Alipay already limits the amount of money some customers can withdraw from Yu'e Bao into their bank accounts to the equivalent of about $7,758 a day. Tianhong added it will continue to keep "liquidity management as a top priority" and has made adjustments to its portfolio holdings this year. The manager is also taking steps to limit the fund's growth. In May, Yu'e Bao imposed a 250,000 yuan limit on the size of individual accounts, down from 1 million yuan. Three months later, it reduced the account limit sharply again, to 100,000 yuan. The limits apply only to newer account holders."
It adds, "Yu'e Bao is facing growing competition from rivals that have copied its approach. Users of Alipay now have the option of placing their cash in money-market funds managed by outside investment firms that earn higher returns. Tencent Holdings Ltd., the Chinese social-media giant that owns popular messaging platform WeChat, is starting a new fund that allows users to earn interest of as high as 4.29% on cash balances in their accounts."
Finally, the Journal writes, "Chinese money-market funds held assets totaling $827 billion at the end of June, compared with $56 billion four years ago, according to Wind Information Co., a data provider. Money-market funds now account for over half of China's $1.6 trillion mutual-fund industry, according to the Asset Management Association of China. Investors continue to pile in. In July alone, another $114 billion flowed into Chinese money-market funds, according to government data."
