Money market funds were hit by €53 billion of outflows in the second quarter of this year, up from €2 billion in the previous quarter, as the European Union mulls stricter regulation of the sector.
The statistics, released by the European Fund and Asset Management Association (Efama), come two days after the EU released a controversial statement, entitled "New rules for money market funds proposed", for Europe’s €1 trillion industry.
The EU says that during stressed market conditions, as in 2007 and 2008, money market funds could not always maintain the promise of immediate redemptions (liquidity) and preservation of value (stability).
It therefore proposes a 3% capital net asset value buffer for all constant net asset value money market funds that would act as a “capital cushion”.
ICI Global, a trade body for investment funds, has criticised the 3% capital requirement as “economically infeasible, operationally complex, and impracticable”.
The Irish Funds Industry Association, meanwhile, has called for an alignment between EU and US policies.
“The lack of a consistent approach to money market fund reform in the EU and the US – the two largest money market fund markets in the world – could threaten Europe’s €1 trillion money market fund industry – or 15% of total Ucits assets,” it warns.
“If regulators are concerned that certain types of money market funds present a systemic risk to the global financial markets then clearly a global response is required to address such a risk.”
But the EU says the 3% would act as a “capital cushion” for constant net asset value funds that can be activated to support stable redemptions in times of decreasing value of the money market funds' investment assets.
Efama also reports that Ucits funds saw net inflows of €12 billion in the second quarter, down from the record net inflows of €132 billion recorded in the first quarter of the year.
It says that this drop can be attributable to a large increase in net outflows from money market funds and a reduction in net inflows into long-term funds, as investors’ expectations of increased interest rates rise.
Long-term Ucits funds, a category that excludes money market funds saw inflows of €65 billion. Combined assets of Ucits and non-Ucits decreased 1.7% in the second quarter to €9,232 billion at end June.
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