The Liquidity Mismatch

Liquidity

This month marked one year since the collapse of Neil Woodford’s LF Woodford Equity Income fund. The Woodford fund was suspended in June, after it became overwhelmed by redemption requests from investors. One year on and investors are still awaiting their final pay-out. One year on and questions concerning the liquidity mismatches in open-ended funds still remain.

An Overview of MMF Reporting

Liquidity

On 31 March 2020, the European Securities and Markets Authority (ESMA) announced that it was delaying the first reports by money market funds managers under the Money Market Funds Regulation (MMF Regulation) until September 2020. The original date for submissions was April 2020. The delay was due to an update to the XML schema.

Breaking the Buck and the Introduction of Greater Liquidity Requirements

Liquidity

Money market funds (MMFs) are an important part of the European and global investment fund landscape and perform an essential role as a cash management and liquidity tool. They are a type of collective investment fund where households, corporate treasurers or insurance companies can obtain a relatively safe and short-term investment for surplus cash. They have preservation of capital and liquidity as their primary objectives.

The Liquidity Countdown

Liquidity

Fund liquidity problems witnessed in 2019 with Woodford and H2O Asset Management brought liquidity back into the spotlight. Since then, the focus hasn’t really faded on the issue of liquidity, and if anything, has intensified with the COVID-19 pandemic causing market volatility resulting in several more fund suspensions.

Although 2020 has already seen a number of initiatives intended to address liquidity risk, there are still more to come, with September due to be a particular busy month for risk management professionals.