Chinese money market funds (MMFs) have become more oriented towards institutional investors, says a new report from Fitch Ratings.

Historically, Chinese MMFs have had a retail focus. But Fitch believes Chinese MMFs would benefit from “greater product differentiation to better reflect institutional investors’ priority on liquidity and credit quality over the traditional focus on yield.”

Roger Schneider, senior director in Fitch’s Fund and Asset Manager team, says Chinese MMFs provide “an effective tool for working capital management of eligible institutional investors, primarily domestic entities and multinational investors which are legally organised and operating in China as well as others eligible under the qualified foreign institutional investors’ scheme.”

However, he says, “no framework has yet been established for conservative liquidity funds in China, such as short-term MMFs in Europe or prime MMFs in the US.”

Fitch expects an increasing proliferation of Chinese MMFs targeting institutional investors and ongoing investments in high quality funds managed by seasoned specialist investment teams. This trend will also receive a boost from the evolving Chinese commercial paper market, which will add more choices for all Chinese MMFs.

Fitch assigns its top rating ‘AAAmmf(chn)’ to funds with strong capacity to preserve capital and provide shareholder liquidity. The agency will shortly publish a report that details rating considerations for Chinese MMFs, within the framework of its National Money Market Fund rating criteria.