The asset management has emerged ‘intact’ from the COVID-19 pandemic although it has been left at a smaller size thanks to outflows and the downturn in the stockmarket.
According to Amundi, record amounts of cash went into money market funds while actively-managed funds were sold in droves.
However, companies managed to avoid being unable to meet redemption requests or being forced to suspend trading.
Amundi warned asset managers were not yet out of the woods though as corporates could yet go bust or be downgraded which would trigger a possible wave of new redemptions.
“With liquidity below pre-crisis levels and challenging in some market areas, there is a risk that some assets become hard to valuate, possibly triggering further fund suspensions,” it said.
“In order to protect investors from a potential liquidity crisis, asset managers could implement a powerful and active liquidity management policy with high liquidity buffers, both at a fund and group level, with granular stress testing to exploit entry points and avoid a liquidity trap in case of a deteriorating economic outlook.
“This could allow asset managers to fulfil their fiduciary duty and stand ready to meet all redemptions even amid stressed market conditions and remain focused on keeping the portfolio’s structure unchanged in the interests of the remaining investors.”
The report said larger asset managers which had a diversified client base and access to different liquidity pools would be better positioned to face these liquidity challenges than smaller players, however, it would also depend on their portfolio construction choices.
This included holding more assets for liquidity purposes irrespective of valuation considerations, expecting rising volatility, making liquidity a key metric for portfolio construction and adjusting liquidity through calibrated liquidity buffers.
