ESMA Proposes Removal of $17.5B Catastrophe Bonds from UCITS Funds

European regulators are taking aim at catastrophe bonds, with ESMA pushing to strip $17.5 billion worth of these complex instruments from UCITS funds. The MOVE targets products marketed as retail-friendly, despite their inherent risks during market stress. Nearly one-third of the $56 billion cat bond market sits in these funds—a proportion that grew by $5 billion last year alone.

The timing couldn't be more precarious. As hurricane season tests the resilience of these bonds, forced selling could create secondary market opportunities. "We've not yet seen a big liquidity event," warns Neuberger Berman's Peter DiFiore, whose firm avoids UCITS cat bond exposure. The coming weeks may reveal whether these instruments were appropriately priced for retail investors all along.