Although net flows are expected to soften alongside looser monetary policy, global money market funds enjoyed strong gains in the first half of 2024, according to Fitch Ratings.
In a new report, the rating agency said assets under management (AUM) in money market funds worldwide rose by 15% year over year to US$10.6 trillion by mid-2024. Assets were up 7.7% in the first six months of the year.
“The increases were driven by large inflows to Chinese [funds],” Fitch reported, with assets in these funds up 16.9% in the first half.
“The influx of capital into these safe assets was driven by volatility in the equity and fixed-income markets, as well as the yield advantage provided by Chinese [money market finds] over current account interest rates. This makes this fund type an attractive short-term cash stop given the mostly retail funded market,” it said.
Assets in U.S.-based funds were up just 3.3% in the first half to US$6.5 trillion, it said.
“The demand for Treasury and government [money market funds] remains robust,” Fitch noted — however, assets in prime institutional money market funds plunged, dropping 32.8% in the first half, amid forthcoming regulatory reforms.
“This decline is attributed to asset managers shutting down or converting their prime money funds in anticipation of upcoming implementation of mandatory liquidity fees,” it said.
Conversely, prime retail funds, which aren’t affected by the reforms, saw assets rise 12% in the first half. As a result, the prime retail funds have now surpassed the prime institutional fund market in size, Fitch reported.
European funds also saw assets rise by 6.3% in the first half to €1.9 trillion
Looking ahead, Fitch said it expects assets in global money market funds to stabilize amid easing monetary policy.
“Further interest rate cuts are anticipated across Europe and the U.S. in [the fourth quarter], which may lead to accelerated outflows from [money market funds] as investors may start searching for alternative strategies to lock in higher yields,” it said.
For 2025, Fitch expects regional fund flows in Europe and the U.S. “to be influenced not only on the velocity and magnitude of these cuts, but also the duration positioning of fund managers and fund yields.”