Singapore may be hardest hit by reforms in European money market fund: Fitch Ratings

It recorded the biggest short-term MMF sales outside Europe.

The implications arising from the pending European money market fund (MMF) reforms will be felt outside Europe, with Singapore as the most exposed, Fitch Ratings said.

In January 2019, existing and new European MMFs will see constant net asset value (CNAV) restricted to government portfolios only, Euromoney reported. Investors seeking higher returns from funds investing in short-term liabilities of non-government issuers will have to cope with variable net asset value (VNAV) funds instead, but will also have access to new low volatility net asset value (LVNAV) structures.

According to data from Fitch Rating, sales of Undertakings for Collective Investment in Transferable Securities (UCITS) short-term MMFs outside Europe are the highest in Singapore.

“This reflects the relative ease of notifying a UCITS fund for sale in Singapore and the concentration of multi-national corporates' treasury centres in the city.”

The firm noted that corporate treasurers represent a core investor constituency in MMFs.

“Singapore-based corporate treasurers investing in European UCITS MMFs will need to understand the reforms and the implications of different fund types for cash management,” they suggested.

According to Fitch Ratings, money fund providers in Europe are in the midst of a process to develop new products or amending existing ones to comply with the new regulations. Meanwhile, corporate treasurers and other short-term investors are faced with the task to determine which of these new products will fit their needs.