The drama surrounding H2O Asset Management and its investments in illiquid bonds and Neil Woodford’s investment group suspending trading in his largest equity fund in June after it was unable to honour investor withdrawal requests, has put liquidity risk back into the spotlight. For the global asset management industry that it is.
For this reason global mutual funds and even exchange-traded funds have moved into more illiquid investments in an attempt to replicate yields of the market’s former glory days.It is the fear of missing out ,” says Mohamed El-Erian, chief economic adviser at international financial services provider Allianz.Nobody wants to underperform and even if an initial withdrawal from a fund has nothing to do with its manager, it can serve as a kind of contagion that others follow.
Some regulators, however, are already pushing for tougher regulations. The European Securities and Markets Authority, Europe’s top financial markets supervisor, told thethat liquidity “has been a key concern… especially in the prevailing environment of low-interest rates and the search for yield by investors”.
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