RiskBrexitMoody’s: Brexit wouldn’t dent European money market funds

Moody’s: Brexit wouldn’t dent European money market funds

The European money market fund wouldn’t be significantly affected if UK voters support a withdrawal from the European Union in next month’s referendum, says the credit ratings agency.

A ‘Brexit’ wouldn’t prompt any major changes in European money market fund (MMF) managers’ operations, management strategy and total assets under management, according to a survey by Moody’s Investors Service.

If the UK were to vote to leave the European Union (EU) in the June 23 referendum, the US$258bn of MMFs assets managed out of the UK would likely remain there.

The credit ratings agency surveyed 12 EU-based asset management companies about the impact the separation could have on their MMF business. Collectively, these firms manage US$550bn of European constant net asset value (CNAV) MMFs, representing the vast majority of the European CNAV sector and approximately 40% of the entire MMF industry (CNAV and variable net asset value MMFs) in Europe.

“Should the UK decide to leave the EU, it would be a non-event for the European MMF industry,” said Vanessa Robert, a vice president and senior credit officer at Moody’s.

“Most managers surveyed believe that MMFs would be seen as a safe asset class and MMF assets would therefore remain stable or could even benefit from a flight to quality amid uncertainty in the financial markets,” added Marina Cremonese, a vice president and senior analyst at Moody’s. “That said, half of the respondents would still increase their portfolio
liquidity ahead of the vote.”

According to 89% of the asset managers surveyed, a Brexit would not prompt a relocation of management functions. However, respondents said it will be critical for asset managers to maintain the Undertaking for Collective Investments in Transferable Securities ( UCITS ) passport because nearly half (48%) of all European CNAV MMF assets are sold to
non-UK clients through the passporting facility.

If the UK were to leave the EU, distribution teams would have to be located in one of the EU countries for UCITS MMFs to continue to be distributed in Europe. However, only 18% of asset managers think they would need to strengthen their capabilities in the EU, while the vast majority already have capabilities in place. All respondents consider that their ability to distribute in the UK would not be compromised.

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