14 September 2017 — The World’s Largest Money-Market Fund
I recall reading a piece a while back discussing the importance of money-markets as a source of vital short-term funding. What I didn’t know was that the world’s largest money-market fund, with “370 million account holders” and “$211 billion in assets”, derives its funding from retail customers.
In just four years, a money-market fund created by an Alibaba affiliate has become the world's largest, accruing 370…www.wsj.com
I guess if you (Alibaba) have access to billions in funding, it only makes sense to lend that money out and earn a return. But it still boggles my mind that all this money comes from virtual wallets belonging to everyday people. I mean Venmo isn’t taking my $95.83 and investing it in short-term CDs, right? (Just checked, they aren’t).
As the WSJ article above states, regulators are already scrutinizing this business model, with a primary focus on the potential for redemption spikes to cause devastating liquidation. And since Chinese regulators (I assume) have greater flexibility to act, unburdened by principles such as liberty or free markets, the risks of a large-scale meltdown may indeed be inconsequential. But when I see quotes like “I am not too concerned about what Alibaba does with my money since it’s too big to collapse”, I can’t help but think about how the Chinese consumer will handle an actual, serious financial meltdown. Chinese faith in the system, and by extension The Party, has yet to be tested in a serious fashion.
Come to think of it, The Party probably intends to keep it that way.