Top active fund managers say they are struggling to attract money from large investors who are holding back in the face of volatile markets and cash accounts offering the best yields in years. Institutional investors such as pension funds, endowments, and foundations control billions in capital and are responsible for most allocations to the biggest asset managers. Cash sitting in US institutional money market accounts now totals almost $3.5tn, according to the Investment Company Institute, a sum that has climbed steadily this year even as stock markets gather strength.
“There’s a tremendous amount of money on the sidelines,” Rob Sharps, chief executive of the $1.4tn manager T Rowe Price, said in an interview. The US-based asset manager was battered over the last quarter by $20bn in net outflows and said it does not expect flows to turn positive again until 2025. His comments come after the Federal Reserve has aggressively raised US interest rates to tame inflation, in turn boosting the appeal of cash accounts. Yields at the largest money market funds now average more than 5 per cent and are rising fast, according to Crane Data.
“You’re getting yields on money market funds that you haven’t had in 15 years,” Sharps said. “There are a lot of people who are calling for a meaningful slowdown or a recession in the economy, which creates bumpier conditions for credit and equities.” “We’re probably experiencing the worst of it right now,” he added. “Investors are waiting for the Fed to get out of the way.” Institutional investors pulled more than $3bn in the latest quarter from active funds at AllianceBernstein, the $646bn manager. Seth Bernstein, chief executive, said “people are sitting out” after the Fed propped up short-term interest rates and may raise them further. “You’re being paid to wait,” he said.
Source: Financial Times