Insight halts inflows into €1.1bn money market fund after ECB rate cut
Insight Investment has blocked investors from pumping more money into its €1.1bn Insight Euro Liquidity fund following the European Central Bank’s move to cut interest rates.
Last week the ECB cut its benchmark lending rate to 0.75%, down from 1%, in a widely expected move. It also cut its deposit rate to zero for the first time ever, down from 0.25%.
Insight warned investors the cut in the deposit rate would likely impact the fund’s yield. It has therefore moved to close the fund – run by Chris Brown – to new investors.
In a statement it said: “The reductions, particularly the deposit facility rate, are expected to lead to a fall in yield for the euro-denominated Insight Liquidity fund.
“Restricting subscriptions on the named share classes will help to preserve capital and maintain a constant NAV, consistent with the fund’s stated investment objective.”
The current running yield on the fund is 0.31%.
In total, five of the six available share classes are being closed to new subscriptions.
Only share class 2 has remained open to further investment, because it carries a lower cost, Insight said.
The Ireland-domiciled fund – which aims to preserve capital and deliver a return in line with euromoney markets – is predominantly invested in government bonds across Europe.
Key holdings at present include short-term French, German and Dutch government debt.
Insight said it would be reviewing the situation and would re-open share classes when it was “in the interest of shareholders to do so”.
JP Morgan and Goldman Sachs said last week they were closing some of their European money market funds as a result of the rate cut, because of the dilution risk to existing shareholders.
Low rates are squeezing profit margins for money market funds, and other houses have already abandoned the sector.
This article was first published on Investment Week