The safety of the end investor is shaped by legislation and regulations, the introduction of MiFID II in 2018 is a good example of this. Additional rules regarding asset segregation have come into force for a ’beleggersgiro’ and supervision by the AFM has increased. One of the consequences of this is that all non-invested cash from retail customers on a ’beleggersgiro’ must be invested in qualified money market funds (QMMF). New regulations for money market funds were also introduced in 2018; Money Market Fund Regulation (MMFR). A QMMF complies with MiFID II and MMFR.
FundShare Cash Funds
FundShare Fund Management has a UCITS umbrella fund, with 7 Cash Funds (Sub-Funds) set up as a qualified money market fund (QMMF). The umbrella fund is set up as a so-called ‘closed fund for joint account’ (besloten fonds voor gemene rekening). Every Cash Fund specializes in one currency; EUR, USD, GBP, CHF, DKK, NOK and SEK. All Cash Funds are distributed in 17 European countries (passports). These are the following countries: Belgium, Germany, France, Spain, Portugal, Italy, Greece, Austria, Switzerland, Poland, Denmark, Norway, Sweden, Finland, United Kingdom, Ireland and the Czech Republic.
The combination of the different currencies, passports, UCITS, MiFID II and MMFR regulated make these Cash Funds a unique solution. They are accessible free of charge via the DeGiro platform. Via Fundsettle there is a possibility to access the Cash Funds through external brokers and banks. Tailor-made solutions are also possible.
The FundShare Fund Management Cash solution is an option for the following financial service providers:
- ‘Beleggersgiro’ structure
- Asset managers
- Investment funds
The experienced Portfolio Management (PM) team of FundShare Fund Management (FFM) manages the Cash Funds. With an extensive OTC network of renowned counterparties and brokers, the PM has access to as many products and liquidity as possible within the qualified money market universe.
Since the inception of the Cash Funds in 2014, FFM has been the manager. In 2019, the Cash Funds were approved by the AFM as qualified money market funds in the structure of a short-term VNAV (Short-term variable NAV, MMFR, MiFID II). The custodian of the Cash Funds is DeGiro, the depositary is Kas Trust and the accountant is Mazars.
Below you will find the structure of the FundShare Fund Management (FFM) Cash Funds. Below the diagram we provide an explanation of the various parties.
- FFM is the fund manager of the umbrella fund;
- FFM is the director of the ‘Stichting Legal Owner FundShare UCITS umbrella’;
- FFM is the portfolio manager of the Cash Funds;
- Mazars is the accountant of FFM and the umbrellas;
- FSA (FundShare Administrator): (daily) NAV, subscription and redemptions and participant administration;
- Kas Trust is the depositary of the Cash Funds;
- DeGiro: broker (including risk), custodian and distribution; and
- DeGiro: transfer agent and onboarding clients (AML/KYC).
History Cash Funds
The Cash Funds are set up for online broker DeGiro. They have been serving professional financial services providers since 2009 and since the end of 2013 they have opened their platform for retail investors. As a result, there was a need for Cash Funds to invest the surplus cash from retail investors. Below you will find chronologically the developments of the Cash Funds.
In 2014, the first Cash Fund was the EUR Cash Fund under the AIF umbrella. In the following months followed by 10 Cash Funds under the UCITS umbrella; EUR, USD, GBP, CHF, NOK, DKK, SEK, PLN, HUF and CZK. So there were 11 Cash Funds in total with the following features at the end of 2015:
- Maximum maturity of the products: 4 years;
- Minimum credit rating: Investment Grade (A-);
- Different currency products possible;
- Benchmark: ON rate -25 / -100 bps with a minimum of 0%;
- Benchmark was guaranteed via a Total Return Swap with HiQ Invest MNF;
- Fixed Unit NAV of 1. Extra return was converted into new participations; and
- No costs.
MiFID II came into force in early 2018 and MMFR in July 2018. For existing money market funds, there was a transition period until January 2019. Due to the changed regulations, the characteristics of the Cash Funds have changed to:
- WAM (Weighted average maturity) maximum of 60 days;
- WAL (Weighted average life) maximum of 120 days;
- Maximum duration of 397 days;
- "High quality" products according to own credit assessment;
- Only products in the base currency;
- Benchmark: ON rate without deduction and minimum;
- No derivatives;
- Variable rate. No distribution negative or positive return;
- 9 bps management fee; and
- 7.5% / 15% cash liquidity.
This change has been completed in several steps. Due to the new restrictions, the universe of products per Cash Funds has fallen sharply. For some currencies it was not possible to manage a portfolio that met the new restrictions. Because of this we had to close the Cash Funds PLN, HUF and CZK. We have merged the EUR Cash Fund under the AIF umbrella with the EUR Cash Fund under the UCITS umbrella. This resulted in the current 7 Cash Funds.
The increased laws and regulations are there to restore confidence in the financial sector. Safety is one of the most important parts of this. FFM has a license from the AFM and is regulated by DNB. In addition, the Cash Funds fall under the UCITS, MiFID II and MMFR regulations. The MMFR in particular, which is only aimed at money market funds, aims to raise the safety of money market funds to a higher level. In addition to the tightened restrictions, the following components are a selection of the extra measures:
- Stress tests twice a year;
- Valuation policy;
- Internal credit assessment; and
- Minimum Liquidity measures.
The risk control, compliance and assurance are carried out at 7 levels:
- Portfolio Manager (FFM);
- FundShare Fund Management risk control by the Operation & Control department;
- DeGiro risk department on the account level of the Sub-Fund;
- Kas Trust as depositary of the funds;
- Mazars is the external accountant of the funds;
- Audit is done by an external specialized company, Charco & Dique; and
- AFM, the Dutch financial regulator.
With these measures, the Cash Funds meet all the requirements of a qualified money market fund.
The structure of the fund generates costs at various parties. Transparency and efficiency lead to the lowest possible cost structure. The following costs for the Cash Fund are on an annual basis:
- Broker (DeGiro): minimum 5 bps of the AUM* transaction costs. Plus additional transaction costs above 5 bps. This is including custody;
- Administrator (FSA): 7,5 bps by less than 25 mln EUR AUM*, above 1 bps;
- Administrator (FSA): fixed 5.000 EUR, maximum 12.500 EUR;
- Depository (Kas Trust): 1bps of the AUM*, plus 2.250 EUR fixed and plus 21% VAT;
- Audit (Mazars) and Audit support (FSA): 3bps by less than 25mln AUM*, above 1 bps. Plus 2.500 EUR fixed plus 21% VAT;
- FFM: 9 bps management fee;
- No entry and exit fees; and
- No minimum order value.
*AUM = Assets Under Management
The operational costs (Administration, Audit, Depositary) are a maximum of 0.5% of the AUM per Cash Fund. If the costs are higher, this will be at the expense of the management fee, so that the participant will never pay more. Currently, the transaction costs are between 5 bps (EUR, USD and CHF) and 30 bps.