The Big Picture THE BIG PICTURE: INVESTORS BUILDING CASH BUFFERS AS UNCERTAINTY BITES
Money money market fund inflows in 2022 (€bn)
100.0 120.0 140.0
20.0 40.0 60.0 80.0
-60.0 -40.0 -20.0 0.0
Jan 22 Feb 22 Mar 22 Apr 22 May 22 Jun 22 Jul 22 Aug 22 Sep 22 Oct 22 Nov 22 Dec 22 2022 Source: Refinitiv Lipper
The LDI storm may have settled but investors are still focus- sing on liquidity. Mona Dohle reports.
Investors are expecting a more volatile and less liquid period, the latest fund flow data suggests. In the wake of September’s liability-driven investment (LDI) crisis, money market funds reported strong inflows as they built up their cash buffers, according to Lipper Refinitiv. Dur- ing October, more than €125.2bn (£109.5bn) was invested in such funds.
This trend has also been picked up by the European Fund and Asset Management Association (Efama), which registered €124bn (£108.5bn) in inflows into money market funds during that month.
Throughout the period, long-term Ucits funds reported €53bn (£46bn) in outflows across equities, bonds and multi-asset funds, Efama reports. The trend towards liquid assets suggests that UK institutional investors, in particular, are building up cash reserves in antici- pation of further margin calls on their derivative positions.
This is despite yields on long-dated government bonds having stabilised since September’s turmoil. By the end of January, the yield on 30-year gilts stood at 3.8%, compared to its 4.99% peak in September.
The outlook for the pound has also improved. Deutsche Bank, which just four months ago described Britain as a quasi-emerg- ing market, now predicts the pound to stabilise to £1.28 against the dollar by the end of the year, a factor which could help bol- ster the relative size of investors’ currency reserves. But caution is not limited to the UK. In the US, institutional investors are sitting on more than $3trn (£2.4trn) of money market assets. This has helped to make such funds worth $4.8trn (£3.88trn), the highest level since the outbreak of the Covid pandemic in Spring 2020, according to the Investment Company Institute.
This suggests that while British investors might have gained some reprieve from the liquidity strains of last year’s bond market crisis, they are bracing themselves for a more volatile, less liquid market environment as central banks embark on monetary tightening.
Issue 120 | February 2023 | portfolio institutional | 11
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