Manager Research

Recently, Absa Fund Managers (AFM) announced that it was closing down its Absa Money Market Fund (AMMF). At the end of 2020, the Absa Money Market Fund was the third largest unit trust in South Africa with R 85bn in total assets and was only surpassed in size by the Allan Gray Balanced and Coronation Balanced Plus funds.

The closure of this fund has puzzled many investors that are struggling to understand why AFM would shut down its largest unit trust. Moreover, the reasoning that the manager has given for closing the fund is strange. To paraphrase, AFM has communicated to the market that the majority of AMMFs investors had garnered the wrong impression of the fund and believed their investments were guaranteed. As most investors are well aware, investments into unit trusts are not guaranteed, and they do bare risk. To understand why this miscommunication has culminated in the AMMF shutting down, we first need to understand how the AMMF has grown into one of South Africa’s largest unit trusts.

A short history of the AMMF

The AMMF was set up in the late 90s, making it one of South Africa’s longer-standing unit trusts. Initially, when the fund was created, Absa’s bank distribution channels were used to sell the fund and attract flows. In addition, and to make it easier for the manager to attract flows, the fund was loaded onto Absa’s bank administration platform.

Essentially, this meant that the Bank’s staff were able to open up money market accounts for clients and this capital would be invested directly in the AMMF, without submitting an application to invest to the manager. This served as a huge tailwind for the fund’s growth as bank clients (basically anyone with an account at Absa) started to view the AMMF as an alternative savings vehicle that offered higher returns to traditional bank savings products that guaranteed clients capital.  At the time this was also a defensive strategy, given the launch of competing and higher yielding money market funds from other providers.

Eventually, when the Financial Advisory and Intermediary (FAIS) Act came into effect in 2002, the Bank’s staff were no longer able to ‘sell’ the fund to clients. However, the AMMF had become deeply entrenched in Absa’s banking system and was still accessible to clients through the Bank’s auto-teller network and internet banking system, with no waiting time for redemptions.

The ABIL haircut

Back in 2014, as a result of the African Bank (ABIL) saga^[1] the AMMF had exposure to shorter-dated ABIL instruments and this resulted in the fund’s investors losing some capital. Many investors in the AMMF were disillusioned by this, as they were under the impression that their capital was somehow guaranteed by Absa. However, AFM communicated to investors that their investments in the AMMF were not guaranteed.

The confusion was caused because Absa’s banking clients were able to access the AMMF through the same channels that they were able to access other bank products. Although Absa staff stopped actively marketing the fund to clients following the implementation of FAIS, clients were still able to access the AMMF through the Bank’s platforms and there was little action taken to stop the inflows.

Following ABIL, Absa started to create banking products that mirrored the AMMF, that delivered lower returns but with capital guarantees in place. However, flows into the AMMF continued. Following this, a study was conducted that confirmed that the majority of clients invested in the AMMF believed that their capital was guaranteed, and they decided to close the fund.

Differing rationales for closing the AMMF

Since AFM announced that they were closing the AMMF, financial media has been rife with speculation as to why they chose to close down the fund. On the surface, AFM’s communication to clients and the market has been that investors had the wrong impression of the fund and believed that their capital was guaranteed. But it is hard to believe that this was the only motivation for closing the fund.

It seems likely that in the process of closing down the AMMF, the bank will gain assets as many clients switch into bank products that guarantee capital. And, this may have been the most likely reason for the closure of the fund. In addition, it is worth noting that the rates that Absa is offering on the bank products seem generous currently. However, the difference between these products and money market funds is that they are not explicitly linked to interest rates like money market funds are. As a result, the yield that they offer can be changed at the Bank’s discretion.

What can investors do?

In the process of closing the AMMF, AMF has set up a new fund called the Absa Prudential Money Market Fund that will have no links to the Bank. In the interim, clients can take one of three actions:

• They can transfer their assets from the AMMF into the new Absa Prudential Money Market Fund, or


• Withdraw funds directly into their Absa Bank Accounts, or


• Transfer funds into one of Absa’s other banking products.

The impact on AFM and the way forward

AFM has communicated to us that they expect to retain between R5bn to R10bn in assets following the closure of the AMMF that will be transferred into the new money market fund. However, even in that scenario, they will likely lose around R60bn-R70bn in assets, which is just below 50% of their total AUM. This is a substantial knock and we will monitor how the business recovers from this.

In addition, the closure of the fund is expected to have little impact on the investment team that managed the AMMF, and the named portfolio managers, Rehana Rungasamy and Juan Bekker, have already started managing the new fund. In the longer term however, it is hard to say how the broader investment team will be influenced as AFM has essentially lost 50% of its assets (albeit low fee assets).

An important side note is that the new Absa Prudential Money Market Fund will be managed according to a new investment mandate. The new fund will be Regulation 28 compliant and will allow a 5% allocation to high-grade credit instruments.

Lastly, the AMMF was also held in some of AFM’s other CIS funds. These funds will switch to the new Absa Prudential Money Market Fund.

In conclusion, it seems unlikely that the reason stipulated by AFM for the closure of the fund is the only reason the fund was closed. However, the Bank is set to gain assets in the process and we believe that this has significantly contributed to the decision to close the fund.