European and US fund managers running money market funds have actively adjusted their investment strategies to eliminate their exposure to the continued fiscal and credit pressures in Greece, Portugal and Spain.
Fitch Ratings, a ratings agency that rates 73 money market funds with around US$783bn (€642bn) in assets under management, found that overall, funds modified the size and maturity profile of their investments in these floundering countries.
In a statement, Fitch said the modifications have included the “outright elimination” of investment in Greece, and the limitation of investment in Portugal and Spain to shorter-tenured exposure to top-tier banks.
“The elimination and/or reduction of exposures coincided with the timing of increased fiscal and credit pressures facing individual countries. For example, exposure to Greece began declining earlier in 2009 and was completely eliminated by the beginning of 2010, whereas material reductions in exposures to Portugal and Spain began in early 2010,” the firm said.
The Fitch review of these funds found that between the end of 2009 and April 2010, aggregate exposure to Portugal and Spain decreased 27% to $25.8bn from $35.6bn, while exposure to Greece was eliminated entirely. Exposure to the region varies among funds, particularly when comparing US-domiciled vehicles with European funds. For example, although some funds maintained exposure to Portugal, this was limited to a handful of European funds.
Fitch found that average exposure to debt issued or guaranteed by entities domiciled in Portugal and Spain – among those funds that had exposures – declined to 4.8% of total fund investments in April 2010 from 6% of total fund investments as of year-end 2009.
Although investment strategies varied from fund to fund, the funds that remain invested in Portugal and Spain have generally focused on financial institutions, which are viewed as systemically important, and having stronger fundamental credit profiles. For example, the rating agency said that US money market funds’ exposure to Portugal and Spain related almost exclusively to securities issued or guaranteed by Banco Bilbao Vizcaya Argentaria and Banco Santander. Among European money market funds, BBVA and Banco Santander were also the two largest exposures, although there also was some exposure to a number of other financial institutions.Money market definition
In other money market funds news the Commission for European Securities Regulators (Cesr) has set out a harmonised definition of what exactly constitutes a money market fund.
The guidelines, published in the middle of May, aim to improve investor protection by setting out criteria to be applied by any fund that wishes to market itself as a money market fund. The criteria reflect the fact that investors in money market funds expect the capital value of their investment to be maintained while retaining the ability to withdraw their capital on a daily basis. This standard definition will also help provide a more detailed understanding of the distinction between funds which operate in a very restricted fashion and those which follow a more ‘enhanced’ approach.©2010 funds europe