China’s giant Yu’e Bao money market fund riskier than US rival, Fitch says
The fund has most of its assets in time deposits at Chinese banks, whereas its US counterpart, run by JPMorgan, invests in US government debt
Chinese money market fund Yu’e Bao, the world’s largest with assets of some 1.56 trillion yuan (US$233 billion), has a weaker credit quality and liquidity than its closest competitor run by US bank JPMorgan, according to a report by ratings agency Fitch.
Yu’e Bao, which is managed by Tianhong Asset Management and distributed by Alibaba Group Holding’s online payments affiliate Ant Financial, attracted much fanfare during its early years when it offered investors annualised returns of over 6 per cent, and has grown to represent a quarter of the entire money market fund sector in China.
The fund was set up in part to manage the money transacted through Alibaba’s e-commerce platforms, and its size dwarfs JPMorgan’s US government fund, which has about US$140 billion of assets under management.
But Fitch noted that 87 per cent of Yu’e Bao’s underlying assets were negotiable time deposits with domestic Chinese banks, whereas the JPMorgan fund invested only in AAA-rated US Treasuries and government securities, or in repos backed by those bonds.
“The liquidity of Yu’e Bao is weaker than its US counterpart, because these banking deposit instruments are bilateral contracts and hence do not have a secondary market,” said Fitch analyst Huang Li.
“Also, Yu’e Bao’s assets are longer dated, as the weighted average maturity of its assets is 60 days, compared with just 17 days for the JPMorgan money market fund,” she said.
