With investor sentiment for risk assets eroding and interest rates declining, loan mutual funds’ assets under management fell by $5.6 billion in September, or 3.4%, to an 11-month low of $158.1 billion, according to Lipper and fund filings, from $163.7 billion at the end of August. It was the largest monthly decline on record by dollar amount, edging the prior record of $5.5 billion, from August 2011. Of course, as a share of overall AUM, September’s contraction pales beside August 2011’s 7.2% figure.
September was the sixth consecutive month of shrinking loan-fund AUM. Over this period, the category has contracted by $17.0 billion, or 10%, from an all-time high of $175.1 billion at the end of March. And redemptions continued to accelerate in early October. During the first two full weekly reporting period of the month, in fact, Lipper FMI reported an average outflow of $885 million, versus an average weekly figure of $686 million in September. At this pace, loan-fund assets are on pace to decline by $5 billion in October.
Managers say investors continue to withdraw capital from loan funds for three reasons: (1) falling rates, and rate expectations, (2) bubble concerns, and (3) the recent risk-off theme across the broader capital markets. We’ll take each in turn.