5 min read.Updated: 21 Jul 2021, 06:44 PM ISTXIE YU, The Wall Street Journal
Before Chinese regulators forced Ant to call off its blockbuster IPO, the fund had more than $180 billion in assets under management
Assets under management at Ant Group Co.’s highly popular money-market fund fell to their lowest level in years after pressure from China’s regulators forced the company to sit out an industrywide boom.
Data for the second quarter, released Wednesday, showed that the Tianhong Yu’e Bao money-market fund had the equivalent of $120.4 billion of assets at the end of June, down 20% percent from three months earlier to a level last seen in late 2016. Last autumn, before Chinese regulators forced Ant to call off its blockbuster initial public offering, the giant fund had more than $180 billion in assets under management.
Chinese billionaire Jack Ma’s Ant is the majority shareholder in Tianhong Asset Management, the company that manages the eight-year-old mutual fund. The fund’s name means “leftover treasure," and it is sold on Ant’s ubiquitous Alipay app. Close to half of China’s population was invested in it at the end of 2020, and many have stashed money in their digital wallets in the money-market fund to earn income before spending it.
At its peak in early 2018, the fund managed assets totaling 1.69 trillion yuan, the equivalent of $260.6 billion at present exchange rates, and was the largest such vehicle in the world. It used to produce returns far in excess of Chinese bank deposit rates by buying bank certificates of deposit and other higher-yielding products. Its rapid growth and large size drew regulatory scrutiny at the time, leading Ant to impose investment caps and open up its Yu’e Bao money-market investing platform to rival products.
The caps were subsequently scrapped after the giant fund started shrinking and losing investors to other funds.
More recently, the original Tianhong Yu’e Bao fund has come under fresh pressure. In April this year, as part of a five-point overhaul of Ant, Chinese financial regulators ordered Ant to reduce the flagship fund’s assets under management further.
Officials said the fund, which serves hundreds of millions of small investors, would need to shrink to avoid posing a risk to the financial system, though they didn’t specify an appropriate size for it, people familiar with the matter said. In response to the April order, the fund has refrained from chasing better yields or actively promoting itself to investors, the people said.
One concern was that Ant could be weakened by the broader restructuring, and if Ant were to run into trouble, that could spill over through Tianhong Yu’e Bao into the financial markets, one of the people said. The earlier pressure to shrink the flagship fund had ceased in early 2019, this person said.
In a brief commentary accompanying its second-quarter report Wednesday, the fund’s managers said interest rates in China have been on a slight downward trend because of abundant liquidity in the financial system and the country’s prudent monetary policy. They added that China’s economy has been on a recovery trend but that momentum slowed in the second quarter.
Tianhong didn’t go into detail about why the fund’s assets shrank significantly. The money-market fund’s seven-day annualized yield was 2.093% at the end of June, slightly lower than that of some rival funds sold on the same platform. For the second quarter, Tianhong reported a net return rate of 0.5255% and 4.5 billion yuan in profit after fees.
Apart from Ant’s flagship fund, there are 28 money-market funds overseen by other asset managers on the firm’s Yu’e Bao platform that managed a total of 1.7 trillion yuan as of July 20, according to financial data provider Wind. These funds haven’t been told to downsize, according to people familiar with the matter. Some of the other funds are also sold through other distribution channels.
The bigger a fund is, the more troublesome it could potentially be if it runs into problems, said Aidan Shevlin, head of International global liquidity portfolio fund management at J.P. Morgan Asset Management. He said China’s biggest funds tied to e-wallets were also very widely owned. “So if anything were to happen, that would be very concerning," he said.
Ant is at a disadvantage even as the mutual-fund industry, which it helped bring into the mainstream in China, is enjoying rapid growth.
After a boom in equity funds, money-market funds have enjoyed renewed interest recently as investors have piled into safer investments and sought shelter from volatile stock prices. Overall assets in money-market mutual funds rose to a record $1.49 trillion at the end of May, up 14% from a year ago, according to the most recent available official data. Chinese households have become more focused on saving money since the pandemic.
“Chinese mutual funds have potential to further grow," said Li Huang, an analyst with Fitch Ratings. She said the industry’s assets, compared with the size of the economy, still lagged behind markets in the U.S. and Europe. Stronger regulation and less concentration among a few major fund providers would be good for market growth, she said.
Money-market funds invest primarily in certificates of deposit issued by banks, as well as other short-term debts. They make up nearly 42% of China’s overall mutual-fund industry, a much higher proportion than in the U.S. and other markets.
These funds offer more-attractive yields in China than in developed markets, thanks partly to higher benchmark interest rates. As of July 20, the average seven-day annualized yield of 688 money-market funds tracked by Wind stood at 2.09%. Meanwhile, tech companies including Ant and Tencent Holdings Ltd. have made it easy to buy and sell money-market funds through their e-wallets.
Liu Mei, a 22-year-old college student in Beijing, said she and many of her schoolmates were more inclined to park their money in money-market funds after the pandemic, given greater feelings of financial insecurity.
Ms. Liu said she invests spare cash given to her by her parents every month, usually worth a few hundred dollars, in a money-market fund through her Yu’e Bao account. She said she redeems whenever she needs money to spend.
This story has been published from a wire agency feed without modifications to the text
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