Leftover Treasure

The largest money market mutual fund [1] in the world is probably not managed where you think. It is not run by any of the three behemoth asset management firms in the United States. Rather, it is overseen by Chinese financial company Ant Financial, an affiliate of China ecommerce giant Alibaba Group (BABA).

The fund is called Yu’e Bao, which means “leftover treasure.” It lets users of Alipay, Ant Financials’s online payments platform, invest their spare cash for short periods before they spend their money online. Tianhong Asset Management, an affiliate of Ant Financial, is the investment firm which manages the fund.

One-third of China Invested in the Fund

According to a Wall Street Journal article, 588 million users of Alipay, Ant’s mobile-payments network had money in the Yu’e Bao fund at the end of 2018.[2] Assets under management in the fund totalled 1.13 trillion yuan ($168.26 billion) at the end of last year, according to the article which also noted that 114 million new investors put money into the fund.

Despite Regulatory Pressures

Assets in the fund peaked around March 2018 with around 1.69 trillion yuan, according to the Wall Street Journal, causing Chinese regulators to worry about the funds potential systematic to China’s financial system. Not only did the fund’s assets grow, but fund’s managers were investing in long-term, less liquid debt in order to boost returns. In fact, at one point, the fund’s seven-day annualised investment yield topped 6%, according to the article.

Fund management and Ant began taking steps to address regulatory concerns. Ant started offering money market funds from other firms which siphoned some of the money that might have otherwise been invested in Yu’e Bao. The fund also reduced its holdings of hard-to-sell assets, dropping its yields in the process to around 2.37 in March of 2018.

Yet, Tianhong said its investor base grew 24% last year, even though the fund’s assets under management shrank by 28% during 2018.

Ant Financial History

Ant Financial traces its roots back to 2004 when Alibaba created Alipay to facilitate online shopping. In 2010 Ant carved Alipay out of Alibaba after authorities said the payment operation would need a new license to operate. The company soon found itself holding large amounts of cash in escrow for customers ecommerce accounts. Ant came up with the idea of letting customers stash their idle Alipay money in an online money-market fund to earn income. In 2014 Alipay rebranded itself as Ant Financial.

While not a publicly traded company, investors may gain partial access to Ant through holding Alibaba which has a 33% stake in Ant Financial, according to the Financial Times.[3]

Find out more about the Emerging Markets Internet & Ecommerce UCITS ETF (EMQQ).

As of 24th June 2019, the Emerging Markets Internet & Ecommerce UCITS ETF (EMQQ) held 7.79% of its weight in Alibaba.

Read our EMQQ Whitepaper "The Great Confluence" here.

Article Date: 10th June 2019.

[1] A money market fund (also called a money market mutual fund) is an open-ended mutual fund that invests in short-term debt securities such as US Treasury bills and commercial paper.

[2] Xie, Stella Yifan, More Than a Third of China Is Now Invested in One Giant Mutual Fund, The Wall Street Journal, 3/27/19

[3] Lucas, Louise, Alibaba takes 33% stake in Ant Financial, The Financial Times, 2/1/18

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