Speaking at the FSA’s future of fund management conference in London earlier this week, asset sector management leader Dan Waters told delegates fund suspensions must only be used in exceptional circumstances and not as a “convenience” to deal with problems caused by poor liquidity.
Waters said: “Some of you will have followed the case of the recent CF Arch Cru fund suspensions. These were two NURS whose ultimate underlyings were illiquid assets. While I do not wish to comment on that specific case, this is not the first open-ended fund suspension that we have seen during the current market crisis. Similarly, other jurisdictions have seen a growing number of open-ended funds suspended as a result of liquidity problems.”
“Fund suspensions are a last resort for exceptional circumstances only. They are not a ’convenience’ for dealing with problems which have been caused by poor liquidity management of open-ended funds.”
Waters said that whilst suspensions, when used appropriately, act to protect the interests of all unitholders, the detriment to investors who cannot access their investment should not be underestimated.
“It is a reasonable expectation that an open-ended product should be accessible,” said Waters.
Waters said managers must consider carefully on an ongoing basis the liquidity profile of current and potential future underlying investments and the interaction with the scheme’s overall liquidity requirements.