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Investment limits tightened on $233bn Yuebao

Tianhong Asset Management has placed a temporary daily cap on investments in Yuebao, the the world's largest money market fund, in order to stem the influx of money during the Chinese New Year period.
Investment limits tightened on $233bn Yuebao

The restriction applies to automatic transfers from Alipay to the fund. It is effective from 1 February to 15 March.

“The restriction is in place to avoid the money market fund growing too rapidly and to maintain a long-term and stable run for the fund,” the firm announced.

Amid greater scrutiny over money market funds, it is not the first restriction the manager has imposed. In December, it imposed a daily limit of RMB20,000 ($3183) that could be invested in Yuebao. Also, last year the manager reduced the total investment cap in Yuebao to RMB100,000 per person from RMB1m.

Launched in 2013, Yuebao was the first  product of its kind offered in China and quickly gained popularity, gathering around RMB 100bn in assets from 30 million investors six months after it was rolled out.

As of the end of 2017, Yuebao managed asssets of RMB 1.58trn ($233bn). The second largest manager of money market funds in China is ICBC Credit Suisse with RMB 340bn in AUM.

Yuebao, according to Fitch Ratings, “has been growing at a CAGR of 125% since its launch in 2013, thanks to technological development and its links with Alibaba Group Holding Limited’s online payment platform, Alipay, enabling significant retail investment”.

Fearing that money market funds for sale in China are growing too fast, Chinese regulators have made moves to rein in the growth. One of the proposed rules mandates that the net assets of all money market funds managed by a single house must not exceed 200 times the firm’s provisions for risk.

Octopus structure

The ownership structure of Yuebao is not easy to immediately grasp. It began when ecommerce giant Alibaba founded Alipay in 2004. Around the time Alibaba listed in New York in 2014, Alipay the entity was rebranded as Ant Financial. A new Alipay was created as a subsidiary, which runs an online payment platform under Ant Financial.

Further, Ant Financial holds 51% in Tianhong Asset Management, which manages the money market fund Yuebao.

Ant Financial has always been referred to as Alibaba’s “strategic partner”. However, yesterday Alibaba announced it would acquire a 33% stake in Ant.

There is no cash changing hands in the transaction but Ant Financial will no longer pay royalty and technology service fees to Alibaba that were worth more than $300m last fiscal year.

Prior to the transaction, Ant Financial was “affiliated” with Alibaba. It was excluded from Alibaba’s listing prospectus filed to the New York Stock Exchange in 2014. Instead, the two parties had entered a profit-sharing arrangement, under which Ant Financial pays royalty and technology service fees to Alibaba.

The move implies that Alibaba is clearing the way for a spinoff of its finance affiliate, according to South China Morning Post. Last year, Ant Financial, valued at $60bn in its last funding round in 2016, had decided to delay its IPO, the report said.

Part of Mark Allen.