Opportunities for competitors: R80bn looking for a new home with closure of Absa Money Market Fund
It’s not every day that a fund manager decides to close the biggest money market fund in the country. Now, Absa will be hoping that it can hold on to those funds.
Absa Fund Managers plans to close its R80-billion money market fund, the biggest in the country and one of the oldest.
The simple reason, says Sylvester Kgatla, the head of Absa Fund Managers, is that the majority of Absa clients believe that the capital within the Absa Money Market Fund (AMMF) and its associated returns are guaranteed by Absa Bank.
“The AMMF is not a bank account,” he says. “It is a collective investment schemes product, also known as a ‘unit trust’, where capital and returns are not guaranteed.”
As a consequence, he says, “we have elected to close the fund as of 6 July 2021 in the best interest of our clients”.
The closure of the fund is a winding-up process that will see Absa Fund Managers liquidate the fund and pay the proceeds to its investors. Investors have the choice of investing in a new Absa Prudential Money Market Fund, also managed by Absa Fund Managers, or simply having the money deposited into their bank accounts. Alternatively, Absa (the bank) will create an investment bank account with the same account number to which their AMMF investment will be transferred.
“The interest rate on this investment bank account is currently 4.5% p.a., which is equivalent or better than what you are currently receiving from your AMMF investment,” says Kgatla. Notably, it is a bank account and thus funds are guaranteed by Absa.
If this is the route the majority of clients take, it will result in a sizeable inflow of funds into the retail bank.
The AMMF is possibly a victim of its own success. Designed slightly differently from conventional unit trust funds, it was available through the Absa branch network as well as online channels and conventional unit trust platforms.
“It was highly integrated into the bank system, which is what may have led our clients to think that they were invested in a bank product,” says Kgatla. Clients were also able to make withdrawals from ATMs as and when they needed, which may have reinforced the idea that it was a bank product.
That said, a fund closure of this nature is highly unusual, given the size of the fund.
“The Absa Money Market Fund was, by far, the largest money market fund in South Africa and made up more than 31% of the total R253-billion of assets under management in the money market unit trust industry as at the end of March 2021,” says Ray Wallace, CIO at specialist fixed income investment manager, Taquanta.
“So their decision to close the fund is significant and will surely have an impact in the markets and on their investment returns during the wind-down process.”
That impact will largely be determined by the level of liquidity the fund has built up in anticipation of this closure, the speed at which investors in the fund choose to withdraw their funds and the value that the fund managers can achieve for the sale of assets in order to meet client withdrawals, he says.
What makes this redemption so interesting is that the fund, like the other big-money market funds, is extremely low risk, and is invested principally in liquid instruments – cash, deposits and longer-term money-market instruments. It holds no corporate or SOE debt.
South Africa, fortunately, has a robust and well established money market CIS industry and should easily be able to absorb any movements of clients from the Absa funds, so there will be no disruption for the other 34 money market funds.
On the contrary, other fund managers – Taquanta included – may see this as a unique opportunity to gain market share. BM/DM
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