At least US$62 billion (AU$89.7 billion) of global mutual funds have suspended redemptions this year due to COVID-19 driven market stress, according to Fitch Ratings.
The Global Mutual Fund Redemption Suspensions Highlight Liquidity Mismatches report showed this was already well above recent full-year volumes and was considered symptomatic of limited holdings of highly liquid assets to meet any sudden increase in redemptions.
“We believe that the spate of suspensions and application of other extraordinary liquidity-management tools will lead investors to re-appraise the liquidity that mutual funds can provide, particularly when invested in less liquid assets,” Fitch said.
Regulators identified property, high-yield bond and emerging market debt funds as the most exposed to liquidity risk.
“This year's redemption suspensions have been primarily driven by valuation uncertainty, in contrast to those over the last ten years, when outflows accounted for about two-thirds of cases, by assets under management,” Fitch said.
“We believe that this will lead to greater regulatory and market scrutiny of how fund managers determine asset valuations and apply liquidity management measures.”
The ability of funds to maintain liquidity had been helped by central bank support in the US and other markets and it was expected this would become a theme in future market stresses unless regulators took steps to reduce liquidity risk across the sector.
Fitch does not rate any of the funds that had suspended redemptions and would treat suspension of redemptions by money market funds as a strongly negative rating event.