Treasury Today Asia explores how J.P. Morgan Global Liquidity’s money market fund offerings solved Alibaba Group’s requirement for a short-term liquidity investment instrument at a time when the availability of suitable options was limited.

Problem…

With a strong renminbi (RMB) cash position in onshore China, Alibaba’s treasury team were looking for short-term liquidity investment tools that would give them a better yield without compromising liquidity. Yet at a time when China had not begun to liberalise its interest rate market, higher yielding cash investment products meeting Alibaba’s corporate investment criteria were very few and far between. Alibaba’s treasury team needed not only a short-term investment solution offering higher yield with liquidity, but also one that would meet their expectations in terms of transparency and credit rating.

As Randy Ou, Vice President, Treasury at Alibaba Group explains: “A few years back when China’s interest rate market was not as market-driven as it is now, our options were limited. What’s more, the choice of investment tools with a satisfactory credit rating was even more restricted back then.”

…Solved

Then Alibaba’s treasury team began to familiarise itself with the RMB money market fund (MMF) offerings distributed by J.P. Morgan Global Liquidity (JPM GL)¹. “Investing with JPM GL gave us a new perspective,” Ou says. In 2013, Alibaba’s treasury team first began investing in the JPM GL’s RMB MMF offering in relatively small amounts. These amounts gradually increased in scale over the space of two years as the RMB MMF offering steadily gained the confidence of Alibaba’s treasury team. “For us it was really straightforward,” Ou says, “at that time we had real business needs and JPM GL had the solution that met our requirements”. Such requirements met by JPM GL’s RMB MMF offerings included:

• The T+1 feature meets the company’s daily liquidity needs.
• The MMF’s transparency and AAA rating by an international rating agency means it can be accepted by both internal and external stakeholders. The fund’s AAA rating is important, Ou explains, because Alibaba, like many companies, has minimum rating requirements for different types of investments.
• The dividends paid by the MMF are exempt from corporate income tax, something which is not always the case with investment products in China.

But the investment solution’s benefits extended far beyond the immediate benefits of achieving a better yield and highly flexible RMB liquidity. Working with a global partner improved options for Alibaba’s offshore liquidity too, helping their treasury team meet its liquidity demands globally. The relationship has also helped Alibaba benchmark investment decisions against those of its industry peers through the opportunity to participate in the annual J.P. Morgan Global Liquidity Investment PeerView℠ survey. This flagship survey captures the investment behaviour of CIOs, treasurers and other senior decision makers around the world to identify critical trends in the money market funds space, with the 2015 survey attracting over 400 participants.

Ultimately, Alibaba’s treasury found in JPM GL all the qualities they were looking for in a liquidity solutions partner: the ability to achieve balance between international standard and local specialty, risk management capability, dedicated client service and, last but not least, the capability to deliver good investment return.

Ou expects many more corporate cash investors to follow Alibaba’s example and begin investing in RMB MMFs especially at a time when banking regulation is making banks more selective about the liquidity they accept from companies. “Compared with US and Europe, the percentage allocated to MMF by cash investors is still small,” he says. “Though the MMF market is not well developed in Asia yet, I can see an acceleration and progress is certainly being made. That also means it has room to grow, particularly if more banks start to have concerns on taking deposits because of implementation of Basel III.”

The regulatory environment around interest rates and deposits in China is changing rapidly. But for Ou that only underscores the importance of having a liquidity solutions partner that can demonstrate, in his words, “a proven track record”, and has the expertise to help the corporate treasury function identify and navigate through important regulatory developments.

Thanks to the implementation of a successful short-term liquidity strategy provided by JPM GL, Alibaba can now enjoy the flexibility of daily liquidity for its ever-growing RMB cash balances, in addition to JPM GL’s invaluable liquidity expertise and robust risk management capabilities.

Footnote

1. 1. The RMB Funds are for qualified China domiciled investors only. The Funds are managed by China International Fund Management Co., Ltd. (CIFM). CIFM is a joint venture between J.P. Morgan Asset Management (UK) Limited and Shanghai International Trust Co., Ltd.