You're listening to Strictly Business Podcast with Lindsay Williams.
Money markets are an essential part of the global financial system.
They provide liquidity, short-term financing, and they've always been viewed,
in my opinion,
as rather boring and as safe havens.
But is that the truth?
With me now is Vivian Taber, Investment Director at 91 in Cape Town.
The safe haven status, Vivian, of money market funds has been called into
question.
And that's very much the focus of the piece that you sent me, very much focused
on the regulatory environment,
both in South Africa and internationally.
Is that the case?
Yes, that is the case.
I think if you look at the importance of the industry globally, there's around $10
trillion in money market funds.
So you can see what an important part of the global financial system it is.
And, you know, if we look at the South African market and you look at our sort of
surveys here.
In the money market space, we have around 418 billion rands worth of money market
funds.
And then once you start looking at the sort of short interest rate surveys as
well,
which moves slightly out of that very conservative space into the next space,
you've got around 400 billion there.
So it's significant for South Africa.
But you have people, when they're putting their money in money market funds, they
expect to preserve their capital.
But they also want that extra little bit of yields.
And it's really about trying to find the balance between the two.
And regulators want to ensure, first and foremost, that the capital is protected.
And this is really where the regulation has been going.
And this has been on the back of the Financial Stability Board,
which is a global organization of which South Africa is part,
trying to ensure that the markets that they operate in are financially stable.
and a good environment for investment and a safe environment for people.
There must have been certain events that have caused the regulator to prick up its
ears, if you like.
There must have been a couple of occasions where they've said, well, that mustn't
happen again.
Has that been the case?
Yes, that has been the case.
And probably, you know,
the one that we can highlight the most really is what happened in 2008 with the
collapse of
Lehman Brothers and the stress that that caused in the US.
And then if we move a little bit closer to home, you know, it's a long time ago now,
but in 2014,
we had the failure of African Bank in South Africa, and that had impacts on the
local market.
So, you know, there are examples both globally and in our own local markets.
Can you give us, without getting too technical, examples of what happened?
For example, in the African Bank situation where that bank collapsed, what happened
to money market funds?
What happened to the money market?
So...
In terms of money market funds, we actually had a few money market funds
where their one rand value,
capital value that they held, it fell below that stable one rand.
And then managers have to use liquidity management to ensure that they look after
the investors that are still in the
fund.
So they'll put up redemption gates or maybe side pockets.
So ultimately, people did not lose capital in money markets,
but there were stresses in the market that had to be taken.
account of at that particular point in time.
Specifically, what is South Africa doing regulatory-wise, Vivian?
Because I know that Jai Bar and Zeronia has been quite high profile,
but there must be other things going on in the so-called background.
Yes.
So it's all part of a broader framework where the South African Reserve Bank is
looking to strengthen financial
stability in the country.
So as you mentioned, the move from Jai Bar to Zeronia is an important part of that.
But we also have other things that are going on.
So at the beginning of last year,
we had deposit insurance introduced for retail investors at banks.
So that's where South Africa followed what was happening in terms of best global
practice.
We're a little bit behind some of the markets there, but we moved in that
direction.
And then at the moment, there's a bill under discussion that is called COFI,
which is the Conduct of Financial Institutions Act,
which is going to regulate...
and put a framework in place really for financial institutions broadly.
And that includes asset managers.
It includes banks right across the spectrum to ensure that customers are
treated fairly,
to ensure that the regulatory framework is there to keep financial stability going
forward in the country.
Have you welcomed these changes?
Yes, I think we do have to welcome these changes.
You know, we learn from past experiences.
what was missing, what was wrong, how we need to progress.
And the response to that is important because it looks after people's money and
it looks after people's
financial well-being.
And perhaps most importantly, from a 91 perspective, has it changed the way you
look at money market funds?
Has it changed the way that your clients and corporate investors look at money
market funds negatively or
favorably?
I think it's going to make people look at them more favourably.
I think in terms of the way that we actually manage our money market funds,
there's not significant changes that need to be put in place.
I think there might be some benchmark changes as we move to Zaronia and there
might be greater disclosure coming
forward.
But in terms of the actual investments that we invest into, those really high
investment grade,
conservative investments, there's really going to be no change.
What about this year, 2025?
It's been an interesting year for all markets concerned with the price of money,
interest rates.
There's been much made of the short end of the curve and the long end of the curve
going in different directions in the United
States of America.
Does that affect the way that money market investors look at money market funds and
they become quite
selective?
in the type of money market fund that they choose because of the moves that I've just
mentioned?
I think, yes, investors should be selective in terms of what kind of fund
they want,
in terms of where you are in your interest rate cycle,
what the period of investment that you intend to have the fund for is.
So these are all considerations that need to be taken into account.
If you look at the very long ends of the curve, you're not...
really in the money market space.
You're more moving into the bond space.
But even in the money market space, if you're expecting short-term interest rates
to come down,
then you would look to go a little bit longer, take maybe a little bit more risk
and take advantage of that.
If you believe that the interest rate cycle has bottomed, then you're likely to
stay very short.
If you're going to need your money in the next few days or the next month or so,
then you're going to a conservative money market fund.
If you're looking for a little bit more return and you have that little bit longer
investment time horizon,
then it maybe makes sense to go into something that doesn't have a stable one
rand price,
that has a little bit of variability in terms of the capital movement,
where you can get an extra pickup in yield just from going that little bit longer and
taking advantage of that term spread
that you have across the yield curve.
And certainly in South Africa, we do have a steep yield curve.
As you mentioned as well, in the US, the yield curve has got steeper as well,
where the longer end is driven more by macro factors, by fiscal concerns, by risk
premium,
and the shorter end is really driven more by inflation and growth considerations and
what's happening to the short
interest rates that are set by the central banks.
So Vivian, just to summarise, what we can say is, I think,
that a safe haven has become safer because of regulations both overseas.
and here.
And it continues to be all about understanding and aligning investment
choices with corporate
investors, liquidity needs, risk tolerance,
and being mindful of regulatory trends remaining crucial.
Is that the case?
We're welcoming these moves.
So I think we should welcome the changes.
Anything that makes the environment safer and looks after your money better and
makes it more transparent in terms of what you're
investing in.
is a good move, but money markets investments have always been safe
investments.
Making them safer is a good thing though.
Vivian, thank you very much for your insight.
Vivian Tabra is Investment Director at 91 in Cape Town.
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