European Securities and Markets Authority said in a report published Tuesday that the outlook for the money management industry in Europe is deteriorating due to falling credit quality of the investment universe and renewed liquidity concerns.
The total assets under management of Europe's investment funds increased 0.2% to €13.3 trillion ($15.1 trillion) in the first half of 2019, driven by positive performance of the underlying markets.
Equity funds faced significant outflows despite the equity market recovery, ESMA said. In contrast, bond funds benefited from investor flight-to-safety behavior, experiencing €100 billion in inflows, the financial services watchdog added.
In the two quarters, equity funds faced €54 billion of outflows, while multiasset funds saw €16 billion in outflows.
Still, ESMA noted investors are facing very high market risk due to asset valuations being potentially inflated, subdued economic growth prospects and flattening yield curves.
The average effective maturity of fixed-income assets slightly increased to 8.7 from 8.5 years, which exposes funds to interest rate risk, ESMA said. Increasing yields, would lead to losses of 8.1% of funds' net asset value per 100 basis points.
Hedge funds domiciled in the Europe had €564 billion assets under management in the first half of the year, increasing 7.8% in two quarters. ETFs recorded positive flows, driven by bond ETFs, ESMA added. European Union ETFs had €741 billion in assets under management in the first half, of which 68% were equity and 27% were bond ETFs. Information about the remaining 5% was not provided.