MNCs seek out asset managers for money market funds

With banks operating under conditions laid down by Basel III, many MNCs remain reluctant to commit their funds to long-term time deposits and value liquidity.

How times change. It used to be that multinational corporates (MNCs) went to their corporate banks to avail of money market funds. But recently these corporations have turned to asset managers for these products as the banks comply with the requirements of Basel III.

The intriguing aspect to this trend is that the asset managers that provide money market funds for MNCs are sister companies of the corporate banks.

For DWS, the asset management unit of the Deutsche Bank Group, the focus is on building its money market funds business for MNCs in Asia by deploying a full-time liquidity manager, based in Hong Kong, to service clients in this region.

DWS became a subsidiary of the DB Group in March 2018 following a successful IPO that raised 1.4 billion euros and made the asset manager a separate legal entity from the DB Group.

Before the IPO, the bank's asset management unit also offered money market funds for Asian MNCs from its London office. At that time the DB's corporate banking unit, which has an established presence in Asia, promoted the same products for MNCs.

But Basel III changed the operating landscape. Basel III's raison d'être is to improve the stability of banks by increasing the ratio of their deposits that are placed in long-term funds vis-à-vis short-term funds.

Banks, therefore, are compelled to encourage clients to move their deposits from short-term current accounts to longer time deposits.

Despite these laudable aspirations, many MNCs shy away from long-term commitments, and would rather not lock their funds in long-term time deposits because they need liquidity.

"With current accounts, the money is floating around. The clients can redeem anytime. So, Basel III discourages banks from having their money floating around," says Adhitya Wisesa, director, head of Institutional Liquidity Management APAC Global Coverage Group of DWS.

But in these uncertain times, many MNCs value having the liquidity or the ability to access their money at any time.

This seemingly intractable situation has stimulated interest from both the banks and MNCs in money market funds that meet the Basel III requirements but still provide liquidity.

Unlike time deposits, where the funds have to be locked up for 30 days, 60 days, or 90 days, money market funds can also be locked up but for shorter periods than time deposits.

"With money market funds the money can be available within the same day just like with current accounts. So, the client can give us instructions before 12:00pm and we can have the money by 2:00-3:00 pm on the same day. This is not possible with time deposits where the money is locked in," says Wisesa.

DWS has a total of US$2.5 billion in money market funds globally, of which 20% come from Asian clients.

With growing interest in money market funds from their Asian clients, DWS has decided to deploy Wisesa full time in Asia to focus on capturing growth opportunities.

The money market funds offered by DWS complement the product offerings of the Global Transaction Banking (GTB) unit, the corporate banking group of DB, and Wisesa works closely with his colleagues in GTB.

"Our money market funds are complementary to the transaction banking product (of GTB). Normally corporates, when they have some cash, like to park the cash in separate modes. They put it in current accounts, time deposits, and so on. But, because money market accounts have been offering very good yield given the Fed has been increasing interest rates over the past 18 months, people have been showing increasing interest in investing in money market funds. It's a way of diversification," Wisesa says.

DWS money market funds are also "off balance sheet", which means they do not form part of DB's balance sheet.

"We operate with a separate management entity. That said, we work closely with the corporate bank, and the transaction banking business," Wisesa says. 

Wisesa, who assumed his current position in April 2018, says that other banks are also deploying full-time liquidity managers in Asia to meet growing client-driven demand.

At present, DWS is focused on the Hong Kong and Singapore market, where most of the regional treasury centres of the MNCs are located. However, DWS is eyeing expanding coverage to other Asian markets, particularly Korea, Thailand and Australia.

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