ESMA warns EU asset managers that all is not well

September 16, 2019 | Alternative Investments
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Asset managers face a deteriorating industry

The European Securities and Markets Authority has raised concerns about the alternatives sector. In its most recent Trends Risks and Vulnerabilities Report for 2019, ESMA identifies several factors working to the detriment of the EU asset management industry.

Key risks in 2019

The report said trade wars had heightened market volatility. It also said that during the second half of 2019 a no-deal Brexit was a key risk driver.

These and other factors pointed to a “deteriorating” outlook for the industry as well as “very high market risk.”

European Securities and Markets Authority

The TRV report from ESMA cited increased market risk due to:

  • Stretched valuations
  • A softer economic growth environment across the globe
  • Geopolitical tensions
  • Flat or inverting yield curves
  • The decoupling between equities and bonds yields

The ESMA said bloated asset values pointed to complacency on the part of investors and inadequate perception of market risk.

It added that a dovish monetary stance by global central banks could push investors into a renewed hunt for yield. This may result in heightened volatility in portfolios.

ESMA also red-flagged the falling quality of outstanding corporate debt, as well as the growth in leveraged loans. In addition, it advised regulators to maintain a vigil on the tendency to avail higher leverage.

Finally, the regulator warned that the fledgling European economic recovery could prove short-lived due to trade, political and financial uncertainties. Furthermore, a serious fallout could be concerns over debt sustainability by certain European sovereigns.

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