EUROPE - The European Fund and Asset Managers Association (EFAMA) is predicting investors will reassess their future exposure to money market funds investing in asset-backed securities (ABS) following recent turbulence in the investment markets.
There was a significant shift into money market funds earlier this year by European investors, according to EFAMA's first half figures for 2007, but the investment association is now suggesting recent volatility may have opened investors' eyes to the risks of investing in money market funds holding ABS'.
Figures released this morning reveal total net sales in UCITS funds reached €190bn in the first half - €49bn lower than the same period last year - driven in part by stronger inflows of €79bn into money market funds, the bulk of which appears to have moved during the earlier March equity market correction.
Since then, however, investment sales activity has slowed and EFAMA is suggesting could remain low for some time on the back of current market volatility.
"The crisis in the US subprime market and the financial contagion to major stock markets is likely to continue to impair net sales of equity funds in the third quarter," said EFAMA.
"However, the interventions of the central banks to avoid harm spreading to the real economy should contribute to restore confidence and trigger a rebound in stock prices.
"At the same time, investors are likely to reappraise the risks associated to enhanced money market funds investing in asset-backed securities. The search for safety will benefit funds following a more defensive style of investment," commented the body on the release of its latest European statistics.
Elsewhere, Abn Amro is predicting there are likely to be further hedge fund collapses because of illiquidity in the market.
In its latest monthly 'Alternatively' review of the alternative investments market, Abn analyst Mark Jones said: "We expect more funds to fail over the coming months, as redemptions force some of the weaker funds to sell into an already-illiquid market, and so this topic is not going to go away."
At the same time, however, Jones suggested hedge funds and funds of hedge funds could learn from listed funds and improve transparency on the back of demand from pension fund investors.
Evidence compiled by Abn Amro revealed three-quarters of hedge funds in Europe reported their regular NAV estimates either daily or weekly.