Bringing you live news and features since 2006 

Cerulli questions UCITS’ liquidity

RELATED TOPICS​

Latest research from Cerulli Associates finds that the 'protection' afforded by the rapid redemption rights of a UCITS-compliant structure is of limited value, if the fund's investments cannot be easily liquidated or only at fire-sale values.

 
With illiquidity fears mounting, the firm says the UCITS brand faces a denting if the professed safeguards of regular and speedy withdrawals prove of limited worth to redeemers if markets dry up.
 
One Genevan house directing insurers' cash into UCITS-compliant hedge funds, told Cerulli that illiquidity risk is already evident in the investments of some liquid vehicles. It contends that given some of this sector's largest portfolios grew so rapidly, and bought into mid- and small-caps, some of their equities positions "could take up to two years to unwind."
 
This, says Cerulli, could make it very difficult to sell some holdings at reasonable prices, to honour redemption requests in a matter of days.
 
“It seems that portfolio managers in the UCITS hedge fund sector are not blind to the illiquidity risks sometimes attached to their strategies. At periods during last year, for instance, up to 40 per cent of assets in onshore directional equities hedge funds were in portfolios that were closed to new business” Cerulli writes.
 
"It seems somewhat contradictory to deploy a liquid hedge fund vehicle, but then to restrict investors' entry to it in any way," says David Walker, European institutional research director at Cerulli. "However, limiting subscriptions to a fund makes good sense overall for the manager and clients, if the manager's 'alpha' is threatened by fund size, or if shallow markets would stop significant withdrawals being met readily."
 
Many European institutional investors Cerulli Associates speaks with at present express concerns that fixed income instruments right across the spectrum of credit worthiness could face illiquidity problems if holderstake flight.
 
Institutions are faced with a conundrum, says Barbara Wall, Europe research director at Cerulli. "Not only is the fixed-income complex they are most familiar with worthless as anything but a cushion or safe harbour. Now it threatens to turn illiquid."
 

Latest News

ETF data consultant ETFGI reports that assets invested in the global ETF industry reached a new record of USD12.71 trillion..
Calastone has published an ETF white paper which examines several of the processes that take place across the lifecycle of..
Adapting product lines to fit into changing methodologies and meet shifting demand is essential to remaining relevant in the industry..
Investors urgently need greater access to diversified investment strategies aligned with the Paris Agreement on climate change if the world..

Related Articles

Taylor Krystkowiak, Themes ETFs
Themes ETFs opened its doors in December 2023, with an introductory suite of 11 ETFs – seven thematic and four...
Konrad Sippel, Solactive
At the end of March, financial index specialist, Solactive, published its 2024 annual report on future trends.  ...
Lorraine Sereyjol-Garros, BNP Paribas
Following changes to the French Monetary and Financial Code and of the French market authority AMF’s General Regulation, it is...
Ed Rosenberg, Texas Capital
Texas Capital Bank first opened its doors back in December 1998 and nowadays offers wealth-management services, as well as commercial,...
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by