Yu'e Bao, the money market fund distributed on Ant Financial's payment network, Alipay, has lost its top ranking as the world's biggest such fund, according to Fitch Ratings.
The fund has shrunk by 39 per cent from its peak in March last year as negative real yields and keener competition from banks' wealth management products triggered an outflow of money.
As of June, Yu'e Bao's assets under management stood at 1.03 trillion yuan (US$150 billion), down from 1.69 trillion (US$267 billion) in March 2018, according to Fitch.
Yu'e Bao is managed by Tianhong Asset Management, which is 51 per cent controlled by Ant Financial, an affiliate of Alibaba Group. Alibaba owns the South China Morning Post.
The money market fund (MMF) has been symbolic of China's advance in online trading of goods, as it was set up originally in 2013 by e-commerce and internet payment giant Alibaba to help users of Alipay invest their idle cash. Its innovation, which also allows online shoppers to directly make payment by cashing out from the fund, placed it well ahead of its western peers, such as Amazon.
"Fitch believes that Yu'e Bao is no longer the world's largest MMF," analyst Li Huang wrote in a recent report. "Falling yields have been an important driver in the decline in Chinese MMFs' asset under management".
By Fitch's estimates, at the end of August, the assets under management of the other two mega MMFs, JPMorgan US Government MMF, and Fidelity Government Cash Reserves Fund, were US$147 billion and US$150 billion respectively.
"Factoring in the depreciation of the Chinese yuan against the US dollar, it is probable that the Yu'e Bao is now smaller than these funds," Fitch said. Its assertion is based on an exchange rate of one yuan to US$0.14 , assuming Yu'e Bao's asset level in June remaining unchanged.
Chinese MMF yields have dropped by over 200 basis points, with the market average seven-day yield down to 2.4 per cent by July this year from 4.6 per cent at the end of 2017.
Net of inflation, real yields turned negative in April, the first time since the Chinese funds began their rapid expansion in 2013, contrasting with the US government's MMF yields which were closer to 1.8 per cent in July.
"We expect further outflows if the real yield remains negative", Fitch said.
But the decline in Yu'e Bao's size was also an outcome of its sponsor's own decision. Yu'e Bao's rapid growth led to Ant Financial's move to diversify Yu'e Bao, " originally just one fund " into a multi-fund platform now housing 28 funds with more than 20 managers, leading to some investors switching over to other funds, Fitch said.
Meanwhile, competition from banks has also been rife, with short-term wealth management products also driving some investors away from MMFs.
For example, on Friday "ICBC Tian Li Bao", sponsored by the Industrial and Commercial Bank of China, was paying a 7-day annualised yield of 3.21 per cent; elsewhere, "Zhao Zhao Jin", sponsored by China Merchant Bank, was paying a 7-day annualised yield of 3.33 per cent. That compared to the 2.26 per cent yield of Yu'e Bao.
Now its flagship fund has shrunk in size, Ant Financial is hoping its technology edge will help it attract more funds onto its platform.
"Fund managers can leverage artificial intelligence and data analytics capabilities offered by the Yu'e Bao platform to better predict the liquidity fluctuations by the hour, therefore effectively enabling them to design cost-effective investment strategies, and better manage liquidity," said a spokesman for Alipay.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
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