Investors confused at reasons for Absa closing its Money Market Fund

Investment experts are questioning Absa’s decision to close its Money Market Fund as the decision will lock in customers who follow the bank’s advice to move their money to an Absa fixed deposit account, while they will also pay higher fees.

Absa said in a letter to customers that the unit trust fund,  established in 1997, will be wound up in terms of Section 102 of the Collective Investment Schemes Control Act and be closed on 6 July. The reason for this is not clear, but Absa hinted that some of its investors might have been using it as a bank account, which it was not meant to be used for.

However, investment strategist Magnus Heystek, director of Brenthurst Wealth Management, is not impressed with Absa and says the market is not impressed either. “It is all very confusing. What they say and what reality is, is not the same thing,” he said.

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He says money market funds are the safest investment because they spreads the risk over a group of investments, which is very low risk for investors.

“It is the first time ever that this happens. It is absolute rubbish that Absa is closing the fund because people are using it as a bank account. Absa now wants customers to convert their investments to a fixed deposit,” Heystek said

“The risk will then depend on Absa only and not a group of investments any more as there would be with a money market fund. A money market fund cannot go bankrupt, but Absa can. Not that I think it could happen.”

With a money market fund you always have access to your money, but with a fixed deposit you are locked in for a predetermined period and cannot touch it. Heystek says it is a smart move from a business point of view, but he says Absa is not being honest with its customers. He expects many investors to move their money elsewhere.

He also points out that Daniel Mminele, CEO of Absa since January 2020, worked at the South African Reserve Bank for 20 years where he served as deputy governor for two five-year terms.

“They know how it works and yet they are not telling the truth.”

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Heystek says its explanations are not good enough, as the almost R80 billion in the fund are other people’s money. He wants to see the Banking Association and other bodies comment on this and finds it strange that Absa is refusing to join the discussion on radio and television shows.

The Banking Association as well as the Banking Ombudsman did not want to comment, saying it is not in their mandate.

Economist Mike Schüssler says as the country’s biggest money market fund, it was seen as safe and good, with many people, especially older people, investing because they often prefer safety more than growth.

“I have nothing bad to say about the fund, only that the communication caught a lot of people off guard. Many people ended up confused and that was certainly the case at least on some parts of social media.”

What Absa says

Sylvester Kgatla, head of Absa Fund Managers Limited, said in a statement that Absa recently conducted a review of the Absa Money Market Fund, which had roughly R80 billion in assets under management.

“The outcome of the review highlighted that most of our retail clients mainly require a bank account that is guaranteed by Absa at an attractive interest rate. More than 90% of the investors in the fund are retail investors.

“The findings of the review are not inconsistent with our previous notifications to our clients, which reiterated that the fund was a unit trust and that capital and returns were not guaranteed.”

He says in Absa’s effort to respond effectively to this important finding, it decided to close the fund.

“The decision to close the fund was an important decision but certainly a difficult one. However, it is in the best interest of investors. We carefully considered a range of alternative options, which were deemed unsuited and not in the best interest of our clients.”

Absa held several proactive engagements with the Prudential Authority (Sarb) and the Financial Sector Conduct Authority (FSCA) to seek guidance by firstly positioning the composition and status of the current Absa Money Market Fund, as well as sharing the research findings, Kgatla says.

Kgatla says Absa is offering each client segment a distinct financial product to suit their needs and is talking to customers regarding the various options available to them.