EPFR CEO Todd Willits and Director of Research Cameron Brandt join together in this exciting time to talk about the latest company news and what it means to be a stand-alone company in partnership with private equity firm Montagu. They also give a sneak peek of major themes in the money fund industry as the team prepares to host the Money Market Xchange MMX event on October 12. And as always, Cam gives his insight into what's going on in the current fund flow and allocations data that EPFR tracks.
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Cameron Brandt 00:23
Hello and welcome to the EPFR Podcast today, a slight back-to-the-future moment as we're joined today by EPFR CEO Todd Willitts who kicked off these podcasts over two years ago. And back-to-the-future is a good way to start today's podcast because we're going to talk a bit about the future of EPFR which recently, as some of you may have read, passed from the ownership of Informa to private equity firm Montagu. So without further a do I'll turn it over to Todd to sort of explain some of the bare bones of what this will mean for EPFR going forward.
Todd Willits 01:09
Hey Cam, thanks for having me, great to be back on the podcast! So I think probably the first thing I'd just like to explain is this concept of us being a standalone company has been mentioned a few times. So, I thought it would be helpful to just kind of explain what that concept of standalone means. In essence, we're going to have full control over the direction of the business from the product roadmap all the way to the company culture. It means we're going to be able to speed up the development of things that we've long planned for like high-value data sets. We can enhance existing datasets at the speed that is preferable for our clients and we can create more analytics and visualizations which ultimately should allow our clients to get more value out of both the existing and the future offerings.
Cameron Brandt 02:02
Good. So when you and I reconvene in this forum in the future, what are some of these new offerings you think we'll be talking about?
Todd Willits 02:14
Yeah, so I could probably give a few examples of recent products that we have launched that would be indicative of the types of offerings that we'll create. So I know Cam you've talked about on this podcast the Hedge Fund Flow dataset that we have developed. So in essence that's assets moving into and out of globally domiciled hedge funds. We can talk about that in a moment, I know that we have some level of insight into that. Another example is the Stock Barometer that we've reached recently brought to market. So that Stock Barometer uses our security level stock flow data and it's a visual representation of sentiment and asset movements into and out of those individual equity securities. You'll notice this concept of asset movements. Ultimately we want to be the single source of truth for where money is moving around the world between different financial products. The Stock Barometer gives us a visualization where we can help our clients tell that story themselves and datasets like that Hedge Fund Flow product I mentioned are kind of the underlying proof of what is happening in a market. Do you want to speak at all to that Cam, the Hedge Fund Flow insight?
Cameron Brandt 03:40
Well, I might just mention that our latest review of the monthly data has come out generated by the Quant team and what certainly struck me was that among the asset class groups that got money were energy funds which is a somewhat different picture from what we've been seeing in our more standard Fund and ETF flows regarding energy. Energy Sector Funds have struggled in recent weeks, I think in big part because, with the crisis that has been generated in that area by Russia's invasion of Ukraine, Europe is paving the way for regulation of prices and rationing supplies which does not sort of promise the kind of profits that might draw more people into the sector. From hedge funds to perhaps the opposite asset class, part of the EPFR offering is the coverage of the Money Market Fund industry done by iMoneyNet which is now a part of EPFR. And we will be having our first public event as a standalone company this week in New York when we gather with the core iMoneyNet people to discuss what is generally regarded as one of the more stable and prudent corners of the portfolio capital universe.
Todd Willits 05:29
Yeah MMX returning, Money Market Xchange very excited for that. It's really a chance for us to show a lot of the thought leadership that you and the iMoneyNet team have built up over the past couple years and bring together different industry participants who really have a strong voice in the market and it's all backed by that data that we provide around money funds and the impact of rising rates. As we see more and more of our clients get more assets in and obviously see rising interest rates, there's definitely a lot of interest in this part of the industry. So very excited to have everyone back in New York, right by Hudson Yards at Canoe Studios to have a pretty lively conversation around money funds.
Cameron Brandt 06:29
Well, it is going to be a particularly interesting point in time to discuss them because for that industry things have gotten very interesting in the Chinese sense of the word. They are sitting on top of still a greatly enhanced asset base thanks to the flight towards them that we charted in the immediate aftermath of the Covid pandemic shock in early 2020. At the same time, their ability to manage profitably that additional assets has been complicated by the pressure from previous rounds of reforms and another round of reforms that the SCC has been advocating for, which has really sort of pushed most managers to take the most conservative options. So huge asset base but the average weighted maturity of the assets they hold to meet that has shrunk. A lot of the industry is still tethered to the Fed's Repo facility which obviously provides stability and safety but tends to anchor margins and some of the options. So there will certainly be a lot to discuss. The industry feels I think- I don't think- I'm misquoting them here, that there are bigger issues in the short-term funding market that regulators rather than addressing have chosen to simply heap a few more rules and regulations on them.
Todd Willits 08:28
On the China topic, I know a number of our clients are looking to open those china-focused money market funds. So obviously it's - to your point - it's a large untapped part of the market that I think everyone wants exposure to.
Cameron Brandt 08:44
Yeah, at least one of our clients is in partnership with a Chinese firm to develop more money market products. You know for many- not many- but for several years that particular story in China was dominated by the giant fund managed by Ant Financial. That is no longer dominating the market, somewhat a victim of China's regulatory crackdown on many of its cutting-edge tech and financial firms. But still an evolving market and then still China's official policy that they want to open it up in a measured way to foreign expertise. Interestingly our flows data shows that after a lengthy inflow streak into China Money Market Funds, they've just started to compile a small outflow streak. Perhaps they knew we were going to be talking about them. Anyhow, we will have quite a bit I think to discuss stemming from that conference on the next podcast.
Todd Willits 09:57
Absolutely. What are you keeping an eye out for in the coming weeks, Cam?
Cameron Brandt 10:02
Well obviously there's a lot going on in the general market and that's to some degree reflected in our flows and allocations data. Europe remains perhaps the focal point of the many stresses and strains that are afflicting the global economy right now. All roads seem to lead there but as is often the case though the general backdrop can be spun into a very gloomy tale indeed, we are seeing people with clearer eyes seek opportunity in this current climate. There is finally some yield on offer for fixed income investors and we've seen very strong flows, especially at the short end of the curve into Sovereign Bond Funds, Dividend Equity Fund flows remain consistently strong. And one interesting development we've been seeing recently is that rather than the perceived safety or relative safety of diversified exposure which you would get through the Global Emerging Markets and Global Equity Funds, we've actually been seeing more conviction in certain country level fund groups which is not the normal pattern in periods of stress so that's something we've been keeping an eye on.
Todd Willits 11:38
What do you think is driving that? Is that inflation running rampant around the globe has a bigger impact on broad emerging markets and maybe there's more perceived risk?
Cameron Brandt 11:51
You know it's new enough that I'm still trying to work out sort of what really lies behind it. But I think in some cases it's simply that given the general market route and the drop in the dedicated country fund performance that that has triggered, that investors can see some value there in a specific way that's much harder to do when you're looking at the big picture and there seem to be fires in every corner of the investment landscape that you look. China, as is so often the case, I think remains a special case. Investors are very consistently putting money into a market that has many of the pathologies that would they would normally run away from. There'd been a number of narratives driving that. The latest of which seems to be the belief that Xi will easily get the third term he is seeking later this month or early next and with that in the bag he will be more open to being flexible on the Zero Covid policy which would obviously have a very positive effect certainly on the Chinese economy.
Todd Willits 13:17
Yeah, and even in the last week or just over two weeks ago, we saw Hong Kong lift a lot of those quarantine rules for visitors so it does seem like there is a general trend towards easing in that region.
Cameron Brandt 13:37
Which is music of course also to investors' ears as other central banks tighten. Any government that has a credible plan for making money conditions easier is likely to get some positive attention in the current climate.
Todd Willis 13:56
So Cam, thanks for having me. Just to kind of wrap up. Very excited that we are now part of the Montagu portfolio and family. Over time I think probably the biggest changes that clients could expect to see. We're going to definitely be incorporating the needs of our clients and the voice of our clients more and more into the products. So we want to know what challenges our clients are facing that will ultimately inform our product roadmap so if you are a client and listening to this, we'll definitely be engaging in conversations around that in the coming months. As far as actual product changes, I think we'd like to incorporate more and more of the visualizations we had briefly talked about so things like Sankey Diagrams, so we can easily visualize money moving from one location into another location. Ultimately that will allow clients to synthesize to those most important themes that you notice but you notice them can because you've been doing this for so long and you have a general sense for what narratives are emerging. A lot of our clients need a little bit of assistance to understand those themes or trends with minimal processing on their end. So hopefully we can speed that along and in general speaking of speed, we're going to aim to go much faster in developing our offerings and are definitely going to be looking for feedback through the entirety of the process. So for those of you listening, thank you for listening and we're very excited to be undertaking this next phase of our evolution as a standalone business, EPFR incorporated.
Cameron Brandt 15:38
Good, see you in New York!
Todd Willits 15:42
See you in New York, thanks Cam!