Since late February 2014 the financial media in China
have been abuzz with discussion of “Yu’e-bao” (余额宝yú
é bǎo), and with the stiff competition that it is giving to banks in China. The online financial product is giving its
customers an annualized return of more than 5% (nominalized, in CNY), and permits
them to buy in with as little as 1 yuan (USD 16¢). Because total bank deposits in China have
been declining for months due to higher returns available elsewhere through
Yu’e-bao or other online products, commercial banks are torn between raising
their interest rates on deposits – difficult for now because most banks are
already close to the rate ceilings mandated by the People’s Bank of China – or
offering similar online products.
Yu’e-bao is a component of the Alipay (支付宝)
payments system run by China’s Alibaba
Group (阿里巴巴集团). The payments
system, the largest in China, currently has approximately 300 million active users,
and is connected to 134 banks and 460,000 merchants.
Beginning on 13 June 2013, Alipay began offering its
customers the opportunity to earn money by placing part or all of their funds
in a separate account for “surplus treasure” (yu’e bao). These accounts rapidly became popular, and as
of 26 February 2014 Alipay had 81 million Yu’e-bao accounts, more than the
number of holders of A-class shares on the country’s two stock exchanges
The earnings that Yu’e-bao account holders receive do
not come from Alipay itself. Instead the
company invests its account-holders’ funds in a Chinese money market fund, the Tianhong
Enhanced Income Treasure Money Market Fund* (天弘增利宝货币市场基金). This fund
started operation on 29 May 2013, two weeks before Alipay began offering
Yu’e-bao accounts, and is available
over-the-counter without going through Yu’e-bao. The fund is managed by Tianhong Asset
Management Co. Ltd of Tianjin, founded in 2004, which presently operates a
total of 14
funds.
*Chinese funds do not have
official English names, and translations vary widely.
A casual examination of the fund’s intended investment
instruments reveals that bank term deposits or certificates of deposit (CDs) of
less than one year’s maturity are among the instruments that the fund can
hold. Indeed an examination of the
fund’s prospectus reveals that the fund can invest up to 30% of its
funds in term deposits, and term deposits whose contracts permit early
termination without loss of interest are exempt from this limit.
This is not surprising, and indeed such wording is
standard in the prospectuses of Chinese money market funds. Chinese securities regulations have since
2004 limited money market funds (MMFs) to keeping a maximum of 30% of their
assets in bank term deposits, except in the case of deposits where both
principal and interest can be withdrawn at any time without penalty. Additional restrictions are that MMFs are forbidden
to place funds in term deposits or CDs that have a maturity of greater than one
year, can place no more than 30% of their total assets in any single bank that
is licensed to manage trusts, and can place no more than 5% of their total
assets in any single bank that is not licensed to manage trusts.
The result of all this is that Chinese MMFs have a
fairly free hand in investing in bank deposits.
In fact, according to the Tianhong Enhanced Income Treasure MMF’s quarterly
report for 4Q 2013, of the fund’s total assets of CNY 190.376 bln (USD 31.2 bln)
as of 31 December 2013, no less than 92.21% were in “bank deposits and
transaction settlement funds” (银行存款和结算备付金合计), while 6.70%
were in bonds, 0.83% were in financial assets purchased under resale agreements
(repo agreements), and 0.26% were in other assets.
Holding such a high proportion of total assets in bank
deposits and settlement funds is unusual among Chinese MMFs, but not unheard
of. For instance the Anxin Cash
Management Money Market Fund (安信现金管理货币市场基金) at
end-2013 had total assets of CNY 0.801 bln, of which 82.36% were in bank
deposits and settlement funds, 9.60% were in bonds, 7.44% were in repo
agreements, and 0.61% were in other assets.
Similarly the Yifangda Daily Finance Money Market Fund
(易方达天天理财货币市场基金) at end-2013 had total assets of CNY 6.825 bln, of
which 77.68% were in bank deposits and settlement funds, 12.72% were in
bonds, 1.41% were in repo agreements, and 8.20% were in other assets.
Nevertheless, in general Chinese MMFs tend to have
bank deposit and settlement-fund holdings in the range of 40-60%. For instance the Zhong-ou Money Market Fund (中欧货币市场基金) at end-2013 had total assets of CNY 0.641 bln, of
which 42.61% were in bank deposits and settlement funds, 34.02% were in
repo agreements, 20.26% were in bonds, and 3.11% were in other assets.
On the lower end of the cash-holdings scale, the tiny Fortis
Haitong Cash Management Money Market Fund (海富通现金管理货币市场基金) at end-2013 had total assets of CNY 0.060 bln, of
which 21.44% were in bank deposits and settlement funds and 78.40% were
in repo agreements.
For an Eastern European comparison, let us look at
data on fund composition for the MMFs licensed in Russia, of which there are
presently 10:
Fund name
|
Net
assets as of 2014-03-04, in USD
|
Fund
composition – most recent data
|
Source and date
|
Sberbank –
Money Market Fund
|
25,859,047
|
Cash
in rubles:
21.68%
Bank
deposits in rubles: 22.16%
Russian
government debt: 23.54%
Corporate
debt: 25.80%
|
|
Ingosstrakh
Money Market
|
25,029,637
|
Cash
in rubles: 0.00%
Bank
deposits in rubles: 61.48%
Russian
government debt: 0.00%
Corporate
debt: 27.68%
|
|
TKB BNP
Paribas – Money Market Fund
|
5,282,328
|
Cash
in rubles: 10.35%
Bank
deposits in rubles: 30.03%
Russian
government debt: 33.39%
Corporate
debt: 20.43%
|
|
Rublevka –
Money Market Fund
|
3,140,311
|
Cash
in rubles: 20.85%
Bank
deposits in rubles: 0.00%
Russian
government debt: 48.75%
Corporate
debt: 27.49%
|
|
MFOND
|
732,828
|
Cash
in rubles: 100.00%
Bank
deposits in rubles: 0.00%
Russian
government debt: 0.00%
Corporate
debt: 0.00%
|
|
Julius
Caesar
|
603,320
|
Cash
in rubles: 30.15%
Bank
deposits in rubles: 12.79%
Russian
government debt: 23.57%
Corporate
debt: 29.41%
|
|
URALSIB
Money Market
|
595,782
|
Cash
in rubles: 2.06%
Bank
deposits in rubles: 19.40%
Russian
government debt: 54.54%
Corporate
debt: 21.83%
|
|
Mobile
Capital
|
303,624
|
Cash
in rubles: 0.72%
Bank
deposits in rubles: 92.86%
Russian
government debt: 0.00%
Corporate
debt: 0.00%
|
|
Baikal
Deposit
|
108,793
|
Cash
in rubles: 78.76%
Bank
deposits in rubles: 21.04%
Russian
government debt: 0.00%
Corporate
debt: 0.00%
|
|
Finam
Deposit
|
98,787
|
Cash
in rubles: 28.28%
Bank
deposits in rubles: 33.68%
Russian
government debt: 0.00%
Corporate
debt: 0.00%
Receiv.
from prof. participants: 34.54%
|
These funds are extremely small, with the largest of
them amounting to only USD 26 mln, and the smallest being less than USD 100,000,
and the entire group totaling less than USD 65 mln. (By comparison the Chinese market for money market
funds, which started with the opening of the first Chinese MMF in December
2003, in February 2014 reached a total asset value of CNY 1 trillion (USD 165
bln).)
Perhaps because of the small market for MMFs in
Russia, these 10 funds display a staggering variety of fund investment
strategies, with cash (RUB) holdings ranging from 0% to 100%, RUB bank deposits
ranging from 0% to 93%, Russian government bond holdings ranging from 0% to
55%, and Russian corporate debt holdings ranging from 0% to 35% of fund assets.
A look at detailed filings shows that as of 31 December
2013 the Sberbank - Money Market Fund (ОПИФ "Сбербанк - Фонд денежного
рынка") was holding 12.4% of its assets in cash, 22.3% in bank
accounts, and 58.1% in Russian corporate and government debt. Of the 22.3% in bank accounts, 9.9% was in
accounts of maturity up to one year, 12.4% in accounts of maturity from 1 to 3
years, and none in accounts with maturity greater than 3 years. The picture is much simpler for one of the
smaller Russian funds, MFOND (ЗПИФ денежного рынка "МФОНД"):
as of 31 December 2013 this fund was holding precisely 100.00% of its
funds in a single demand deposit (acct. no. 40701810800010000389) at Bank
Narodniy Credit, and no funds at all in term deposits, bonds, or other assets. (During the year the fund set aside a total
of RUB 409,000 (USD 12,436) for remuneration of the fund management, compared
to RUB 436,000 in total fund income for the year.)
In the USA as well there is considerable variety in
holdings of bank deposits (time deposits and CDs).
The JPMorgan Prime Money Market Fund as of 28 February
2014 had total assets of USD 115.93 bln, of which 38.4% were in certificates of
deposit, 23.1% were in time deposits, 14.2% were in commercial paper
from financial companies, 4.5% were in Treasury repo agreements, 4.8% were in
other repo agreements, 4.4% were in asset-backed commercial paper, 3.8% were in
other notes, etc.
The Vanguard Prime Money Market Fund, on the other
hand, has an investment strategy focused on holding CDs, particularly Yankee
CDs (certificates of deposit issued by the US subsidiaries of foreign banks). Out of USD 130.6 billion in total assets as
of 28 February 2014, the fund was holding 46.7% in Yankee or foreign CDs, 6.5%
in other CDs, 23.7% in U.S. Treasury bills, 14.5% in U.S. government
obligations, 6.3% in U.S. commercial paper, 0.0% in repo agreements, and 2.3%
in other.
As an example of a smaller US money market fund, the
LVIP Money Market Fund as of 31 December 2013 had USD 749.97 mln in total
assets, of which 59.04% were in commercial paper (primarily of banks and
universities), 20.73% were in certificates of deposit, 10.90% were in a
U.S. Treasury Bill, 4.17% were in corporate bonds, 2.20% were in municipal
bonds, 0.43% were in a discount note (Fannie Mae), and 2.53% were in
receivables and other assets. The fund’s
CDs were in denominations ranging between USD 5 mln and 25 mln, and came from
the following banks (with interest rates in parentheses): Banco Estado Chile
(0.20%), Bank of Montreal Chicago (0.17%, 0.02%), Bank of Nova Scotia Houston
(0.21%), Chase Bank USA (0.38%), Credit Suisse New York (0.21%), Deutsche Bank
New York (0.20%), Skandinav Enskilda Bank New York (0.19%), and Toronto
Dominion Bank New York (0.22%, 0.17%).
The tendency for money market funds to hold large sums
in bank deposits or CDs is not universal.
In Turkey, for example, the country’s largest MMF, the
İşbank Type B Money Market Fund (T. İş Bankası A.Ş. B Tipi Likit Fon),
as of 28 February 2014 had total assets of TRY 3.747 bln (USD 1.70 bln), of
which 62.28% were in government bonds, 19.67% were in bank bonds, and 17.97% were
in interbank repo agreements.
The same is seen in a much smaller MMF, the Eczacibasi
Securities Type B Money Market Fund (Eczacıbaşı Menkul Değerler A.Ş. B Tipi
Likit Fon). As of 28 February this
fund had total assets of just TRY 12,407,765.28 (USD 5.61 mln), of which 77.18%
were in a series of four repo agreements, and 22.81% were in three Turkish
treasury bills.
The even smaller Meksa Investments Securities Type B
Money Market Fund (Meksa Yatırım Menkul Değerler A.Ş B Tipi Likit Fon)
as of 28 February had total assets of TRY 2,098,701.38 (USD 0.95 mln), of which
95.38% were in one or more repo agreements regarding Turkish government bond no. TRT150120T16,
4.77% were in one or more repo agreements regarding Turkish government bond no. TRT050314T14,
and 0.05% were in bank deposits (a total of TRY 961.38, equivalent to
USD 435). (These figures sum to more
than 100% because the fund also had liabilities.)
In Japan as well there is a tendency for MMFs to
concentrate their holdings in government bills and commercial paper and avoid
bank deposits or CDs. For example, the Resona
Money Management Fund (りそなＭＭＦ（マネー・マネージメント・ファンド）) as of 28 February had total assets of JPY 18.011 bln (USD
177 mln), of which 69.4% were in Japanese government bonds, 19.4% were in repo
agreements for JGBs, 11.2% were in “other” (call loans, accounts receivable,
etc.), 0% were in commercial paper, and 0% were in bank deposits or CDs.
Likewise the Nikko Money Market Fund (ニッコウ・マネー・マーケット・ファンド) – a fund established under Luxembourg law but which
has its homepage, documentation, and administration in Japan, and which
classifies itself for Japanese investors as “domestic” (国内) – as of 31 January 2014 had total assets of JPY
30.370 bln (USD 298 mln), of which 26.6% were held in ordinary commercial
bonds, 22.1% were in JGBs, 22.4% were in special bonds, 9.9% were in financial
bonds (bank bonds), 19.1% were in “other” (call loans, designated money in
trust, repo agreements, accounts receivable, etc.), 0% were in commercial
paper, and 0% were in bank deposits or CDs.
Sources:
Article on
effects of Yu’e-bao and other Internet financial products on China’s banking
sector: 银行揽储保卫战：与其别人挖走不如革自己的命
(2014-02-27) (This article by董晓寒plagiarizes but updates the following 11 January
article by俞萍丽: 互联网金融分流银行大量活期存款：迎战余额宝，大银行出重拳了
Baike wiki
article on Yu’e-bao: 余额宝
Baike wiki
article on Alipay: 支付宝
Alipay –
About Alipay: 支付宝简介
Tianhong
Enhanced Income Treasure Money Market Fund – Homepage: 天弘增利宝货币
Tianhong
Enhanced Income Treasure Money Market Fund – Prospectus: 天弘增利宝货币市场基金招募说明书
(2013-05-25)
China
Securities Regulatory Commission (CSRC) & People’s Bank of China (PBC) –
Jointly issued interim provisions on management of MMFs: 货币市场基金管理暂行规定 (2004-08-16)
CSRC –
Notice regulating the placing of funds in bank deposits by MMFs: 关于货币市场基金投资银行存款有关问题的通知
(2005-11-21)
Tianhong
Enhanced Income Treasure Money Market Fund – Quarterly report for 4Q 2013: 天弘增利宝货币市场基金2013年第4季度报告
Anxin Cash
Management Money Market Fund – Quarterly report for 4Q 2013: 安信现金管理货币市场基金2013年第4季度报告 (2014-01-21)
Yifangda
Daily Finance Money Market Fund – Quarterly report for 4Q 2013: 易方达天天理财货币市场基金2013年第4季度报告 (2014-01-21)
Zhong-ou Money
Market Fund – Quarterly report for 4Q 2013: 中欧货币市场基金 2013年第4季度报告
(2014-01-20)
Fortis
Haitong Cash Management Money Market Funds – Quarterly report for 4Q 2013: 海富通现金管理货币市场基金2013年第4季度报告 (2014-01-20)
Investfunds
– Russian: Поиск фондов
– денежный (2014-03-06)
Investfunds
– English: Fund
screener – Money Market (2014-03-06) (source for total assets in USD)
FCSM –
Official register of all licensed mutual funds in Russia: Реестр
паевых инвестиционных фондов на 02.12.2013
Total value
of Chinese MMFs surpasses 1 trillion RMB: 货币基金规模突破万亿元(组图)
(2014-03-03 07:37)
Sberbank MMF
– Assets as of 2013-12-31: Баланс
имущества составляющего Открытый паевой инвестиционный фонд "Сбербанк -
Фонд денежного рынка" (2014-01-15 09:36)
MFOND –
Assets as of 2013-12-31: Справка
о стоимости активов Фонда
MFOND – Report
on increase (decrease) in value of fund’s assets as of 2013-12-31: Отчет
о приросте (уменьшении) стоимости имущества Фонда
JPMorgan
Prime Money Market Fund – Composition as of 2014-02-28: Fund
profile overview
Vanguard
Prime Money Market Fund – Composition as of 2014-02-28: Vanguard
Prime Money Market Fund (VMMXX)
Lincoln
Variable Insurance Products (LVIP) Trust – Annual report for management
companies: Form
N-CSR (2014-02-26)
İşbank Type
B Money Market Fund – Monthly report for February 2014: İş Bankası B
Tipi Likit Fon – Aylık Rapor
Eczacibasi
Securities Type B Money Market Fund – Monthly report for February 2014: AYLIK
RAPOR –ŞUBAT 2014 (2014-03-06)
Meksa
Investments Securities Type B Money Market Fund – Monthly report for February
2014: Meksa
Yatırım Menkul Değerler A.Ş B Tipi Likit Fon - Aylik Rapor 2014-02-28 - Şubat
2014 (2014-03-03)
Resona Money
Management Fund – Monthly report for February 2014: りそなＭＭＦ（マネー･マネージメント・ファンド）月次レポート (2014-03-03)
Nikko MMF –
Monthly report for January 2014: ニッコウ・マネー・マーケット・ファンド - マンスリーレポート (2014-02-03)
