EUROPE - European funds staged a recovery in 2010 as money market funds haemorrhaged cash into equity and bond vehicles.

New figures by the European Fund and Asset Management Association (EFAMA) indicate fund assets in Europe increased by 13% last year to €8.025bn, with UCITS funds accounting for €166bn of that total, up from €150bn.

Although money market funds tended to be more attractive to treasurers managing corporate cash, some of the €126bn reported outflows were the result of institutional investors disappointed by performance held back by low interest rates.

Bernard Delbecque, EFAMA director of economics and research said this was partially reflected a holding pattern schemes were engaged in.

"Some pension funds put money into money market funds while they waited for better times," he said. "The figures reflect them relocating that cash into higher return equity and bond funds."

Delbecque added: "If interest rates rise, money market funds will become more attractive. My sense is that the ECB may increase interest rates, but it would be moderate at the beginning.
 
"It may have an effect on money market funds and slowdown outflows, but whether a small increment would be sufficient to stem outflows - that I don't know."

In the absence of an exceptional event such as the Middle East oil shock, which could trigger a sudden change, Delbecque forecast a positive economic output for 2011 and continued industry growth as a result of market appreciation.

"I'm of the view that if the recovery is resilient and the economic prospects for Europe remain good, then inflows will continue." Delbecque said further that he expected 2001 be similar to the previous year.

"Investors have learned from the financial crisis are aware of key risks linked to macro and financial stability. We're in a recovery but it's at an early stage. On that basis there's a link between the economy and capital inflows."