Liquidity risks at UCITS funds

Risk special
Since Woodford there has been more regulatory oversight of UCITS funds’ liquidity risks. Is this why further problems have been avoided to date? Or will there be more Woodfords if there’s a market shock?

As mentioned on page 13 there is concern that the huge growth in mutual fund assets in the last few years could lead to liquidity mismatch, should large numbers of investors to decide to head for the exits at the same time. The IMF reports that open-ended funds now have $41 trillion of assets globally.

Europe has had a number of flirtations with liquidity crises over the last few years. As well as Woodford (see below) 76 UCITS funds had to suspend redemptions in March 2020 in the early days of the pandemic. These funds had $40 billion of assets under management, reported Fitch. On top of these suspensions ESMA stated, also back in March 2020, that European based funds with €100 billion were gated or applied other extraordinary liquidity measures.

To read more on this story, see the October issue of The NED.