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The Asset Class with Vivienne Taberer · Strictly Business

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