Some risk seen returning in money funds

By Jeremy Gaunt, European Investment Correspondent

LUXEMBOURG (Reuters) - JPMorgan Asset Management is seeing some recovery in risk appetite in money market funds that benefitted hugely from a flight to safety last year, but sees future swings coming slowly.

"Risk appetite returns in stages. It leaves on a horse but comes back on foot," said Kathleen Hughes, head of global liquidity EMEA at JPMorgan Asset Management.

She told the Reuters Fund Summit in Luxembourg on Tuesday that her firm's money market funds had seen a 125 percent increase in investment flows between summer 2007 and the end of 2008.

It outstripped the industry's 29 percent growth, she said, and included some $85 billion (60.74 billion pounds) alone in 2008's fourth quarter.

Much of this was due to investors fleeing falling equity markets and other assets being hit by what is being dubbed "The Great Recession".

Hughes said there were now some signs that investors were moving away from the most conservative areas. Within her money markets funds, for example, demand for short-dated U.S. Treasuries and other government-guaranteed paper had fallen off.

"The Treasury fund is nearly half the size that it was," Hughes said. "You might be able to take that as a sign."

Demand for such investments -- very short-term guaranteed paper, not to confused with longer-dated bonds -- had been so great that JPMorgan Asset Management actually closed its Treasury money market segment to new investment for a while. There was too much demand for too little supply.