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Liquidity alert from Transact

Transact has written to advisers warning them about potential rebalancing problems that can arise in model portfolios when assets become entirely or substantially illiquid.

The platform is highlighting difficulties and proposing solutions for advisers after a recent rise in fund suspensions. It follows an FSA warning to fund managers, urging them to consider the liquidity of underlying investments following the recent CF Arch cru fund suspensions.

When assets in a model portfolio rebalance or fund swap have limited liquidity and cannot be traded, it becomes impossible to correctly rebalance assets.

Transact has restricted availability of some assets in model portfolios and uses an automatic safety net to identify limited liquidity assets when a rebalance is requested. When the system identifies potentially illiquid asset classes, the transaction is automatically cancelled and the adviser is contacted for new instruction. The firm says advisers are offered the following options: “Provide us with a new template that excludes the asset, instruct us to remove template functionality from the wrapper that contains the asset, leave the template as is – but without the option to rebalance – or provide us with fund swap instructions for assets in the template except the limited liquidity asset.”

The platform has published a list of assets with potential liquidity issues on its website.

Thomas and Thomas Financial Services managing director Darren Thomas says: “The option to redesign the portfolio with the particular asset frozen outside is sensible but, by excluding the asset and effectively creating a new portfolio alongside it, the adviser may inadvertently increase the volatility and risk.”


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