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Closure of Absa money market fund hurts unit trust sector’s inflows

Garth Theunissen Investment Writer theunisseng@businesslive.co.za

SA’s unit trust industry saw net inflows for the rolling 12-month period to end-September fall to the lowest level in five years, after the closure of Absa’s money market fund earlier in 2021 resulted in clients channelling money away from the sector.

Statistics published by the Association for Savings and Investment SA (Asisa) on Thursday showed that collective investment schemes (CIS) attracted just under R68bn in net inflows for the 12 months to endSeptember. However, Asisa said this was the lowest level of total inflows into the sector for any of the corresponding 12-month periods in the preceding five years. That was despite the sector attracting net inflows of R27bn in the third quarter alone.

Asisa’s senior policy adviser, Sunette Mulder, said the closure of Absa’s money market fund, which had assets under management (AUM) of about R80bn when it was wound down at the end of the second quarter, caused net outflows of R18bn from money market unit trusts. That resulted in a drop in total inflows into SA’s unit trust industry in the 12 months to endSeptember, suggesting that Absa money market fund investors opted to cash out rather than transfer their savings into other unit trust products.

“Absa money market investors were encouraged to transfer their investment into an Absa investment bank account that offers an interest rate equivalent or better than was offered by the Absa Money Market Fund,” Mulder told Business Day.

“The majority of clients probably went with this option, which is why the withdrawals reflect as net outflows in the CIS statistics.”

Absa notified clients in a letter dated April 7 that they had until July 1 to withdraw their funds from its flagship money market fund and transfer the proceeds into their bank accounts or switch their investments into an alternative financial product.

At the time the bank said the primary reason for the fund’s closure was clients’ mistaken belief that investing in the money market product provided the same degree of safety as cash invested in a savings account.

Absa’s money market fund was also highly integrated into its banking system, as it allowed investors to make withdrawals from the fund directly from ATMs — not a typical feature of most unit trusts. That raised speculation that the closure of the fund may have been related to so-called “step-in risk ”— the possibility that a bank may be required to financially support a stressed entity linked to it even if that goes beyond its contractual obligations.

Absa declined to give further details at the time but did say that while it was not instructed by regulators to wind down its flagship money market fund, it had consulted with the Prudential Authority and the Financial Sector Conduct Authority before doing so.

Despite total inflows into the unit trust sector having been eroded, the CIS industry still had an overall AUM of R2.96-trillion spread across 1,685 portfolios as at end-September 2021. Just less than half of those assets were held in SA-domiciled multiasset portfolios (48%), with the rest in local interest-bearing portfolios (31%), SA equity portfolios (19%) and SA real estate portfolios (2%).

Investors continued to favour global general equity portfolios, committing R5.8bn in net inflows to these randdenominated, locally managed offshore funds in the third quarter of 2021. That took total net inflows into global general equity portfolios to R35bn in the 12 months to end-September, which Asisa said was underscored by these funds delivering double digit returns for the preceding one, five and 10-year periods.

Interestingly, SA’s 575 locally registered, foreign-currencydenominated portfolios saw net outflows of R900m in the third quarter, despite offshore investment becoming increasingly popular. Nevertheless, that still left these funds with a total AUM figure of R648bn at endSeptember 2021, up from R623bn the previous quarter.

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2021-12-03T08:00:00.0000000Z

2021-12-03T08:00:00.0000000Z

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