Monique Melis, Managing Director and Global Head in Duff & Phelps’ Compliance and Regulatory Consulting practice, was recently quoted by the Financial Times in an article on the impact of COVID-19 on the asset management industry. While widespread liquidity problems have yet to materialize, with only a small number of funds been forced to stop trading, the real test could still be to come. As the crisis continues and more companies with portfolios collapse, a new wave of redemptions may be triggered. To safeguard against this risk, funds can deploy liquidity risk management tools, ranging from deferring redemption requests, utilizing credit lines, to “swinging” the price of the fund to pass on the costs associated with high outflows to redeeming investors.
The adoption of liquidity risk management tools varies from manager to manager. Monique believes some managers are “still reticent” to use mechanisms such as redemption gates or notice periods, fearing negative reaction from clients. She said no investor is enthusiastic about provisions that delay the recovery of his/her money.
Subscribers of the Financial Times can read the full article here.
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