Several Nordic fund managers have been shuttering fixed income funds, mainly in the corporate bond space, to allow them to get prices from banks for their holdings, as illiquidity bites. On Friday, 20th March buy-side bond traders reported on-screen prices for bonds could be off by 10% to where bonds were actually trading.
Erik Amcoff, head of communications at Carnegie Fonder, says, “The banks, as we see it, did have some work to do when it comes to updating prices on the screens. As far as I know, our dialogues with the banks have been constructive.”
Danske Investment Management, which shuttered – and then reopened – a number of funds last week, noted in a letter to clients of one fund, “Due to high volatility and liquidity constraints on the financial markets, the prices of investments owned by the Fund may not be promptly and accurately ascertained, which might further result in inaccurate valuation of the Fund’s assets. Therefore, it is considered to be in the best interest of the Fund and their shareholders to suspend the net asset value calculation as well as the subscription, switch and redemption in the Fund.”
Liquidity has been a massive issue for fixed income funds as a result of reduced market making activity. This has stemmed from banks committing less capital to warehousing bonds bought from clients, or holding bonds in order to sell them to clients, as regulation makes it expensive for them to do so.
Carnegie Fonder, which shuttered a number of funds on Friday, required additional time to reach out to banks in order to determine prices. In an announcement to clients it wrote, “[We] decided to suspend trading in funds that invest in corporate bonds. As a consequence of the substantial turbulence in the market, there was a risk that the valuations (NAV) could be incorrect. It is our duty to ensure that valuations of the funds’ holdings are correct. During Saturday we reviewed all our portfolios and all their holdings.”
It continued, “We have also been in contact with the banks that set prices and have validated the prices of our holdings. We are now confident that we have the correct valuation of our portfolios, and can therefore open the funds for trading. As of Monday, March 23, the funds will once again be valued as normal.”
Other fund managers, including Lannebo, Spiltan and Cicero have also shuttered funds. The shuttering of trading in Danish investment fund units led Birgitte Søgaard Holm, executive director, Investments and Savings, at industry body Finance Denmark to say in a statement, “At the moment we are witnessing market conditions which, in terms of price movements and uncertainty, surpass everything we have seen so far, and in such a situation suspension will often be the last, and best, resort when it comes to protecting investor interests in general.”
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