Long-Term Growth in Asset Management Industry - Part 2 - Money Markets & retirement Plans

Part 2 discuss the fall in money market funds and retirement provisions.


FALL IN MONEY MARKET FUNDS

1. Very low short-term interest rates, competition from banks seeking to strengthen their balance sheets by increasing the share of the deposits and encouraging economic outlook convinced investors in 2010 to shift assets away from money market funds.

2. Money market funds do not mark to market their assets on a daily basis and these money market funds are “too big to fail” and that, if anything threatens them, the Government will have to step in. 

3. Corporations are less inclined to issue the very short-term commercial paper that the funds need and instead replaced with much more volatile short term bank debt. Some money market funds are taking on more risk by moving their investments from Treasury paper to debt issued by corporations, by banks and even by less creditworthy sovereign issuers.

4. With fewer issuers, the money market funds are over-exposed to some counterparties, with financial institutions high among the list. Also, the money market funds industry has become more concentrated, with the top ten funds commanding 75% of the total in the US.

RETIREMENT PROVISIONS
1. State coffers have been raided by bank bail outs and people are living on pensions for considerably longer than when the state pension scheme was first thought up.

2. The ability of asset managers to better manage risk and offer some degree of downside protection is becoming increasingly important to individual investors: products must be designed, not only to save for retirement, but also to allow for steady income flow after the accumulation phase and safeguard the investor against the risk of having insufficient cash flows in old age.

3. The need to shift the offering from investment products for accumulating wealth to products that offer yield and protection against various risks has been identified as a major trend.