Market Mayhem Meets Liquidity Mismatch: “At Least” 76 Mutual Funds in Europe Were “Gated” in March

Due to “the interconnectedness of the financial system” fund gatings can trigger “contagion risk” with “the potential to become a systemic issue”: Fitch

The mass shuttering of open-end mutual funds, a problem that has dogged the UK’s fund industry for months, appears to have crossed over to multiple fund industries in mainland Europe. According to Fitch Ratings, “at least” 76 European mutual funds, with an estimated $35 billion of assets under management (AUM), suspended redemptions in March after investors scrambled for the exits. Almost £9 billion was pulled from UK-based funds alone, more than any other month on record.

Fitch was able to identify the gated funds by scrutinizing their respective investment managers’ disclosures. But the actual scale of the problem is likely to be a lot larger than the numbers suggest. “The true extent of gating is even greater given that funds’ public disclosures are limited,” Fitch said. According to the European Securities and Markets Authority, funds totaling €100 billion in AUM suspended redemptions or applied other extraordinary liquidity measures in March.Here’s a breakdown (by fund manager location, fund domicile and fund type) of the 76 gated funds identified by Fitch

Fund manager location: Almost two-thirds of the funds (53) were managed in Denmark. Fifteen were managed in the UK, five in Sweden and one a-piece in Finland, Norway and France. The preponderance of Scandinavian countries in the sample may reflect higher disclosure standards for fund managers in the region, Fitch says. In other words, other parts of Europe may also have growing numbers of gated funds that just haven’t been publicly disclosed yet.

Fund domicile: Luxembourg accounted for almost half (36 out of 76) of the gatings, reflecting the country’s dominant position as a domicile for mutual funds. The UK and Denmark respectively boasted 17 and 16 domiciled funds, while Sweden (5), Finland (1) and Norway (1) accounted for the rest.

Types of the gated funds: 15 funds, all UK-based, were in commercial real estate (AUM of €23 billion);

  • 30 funds were in fixed income (AUM: €10.5 billion);
  • 23 gated funds were equity funds (AUM: €1.4 billion);
  • 5 funds were mixed funds (AUM: €1.9 billion).

Don’t Mention the “L” Word

“Widespread gatings like this are rare and the only comparable examples were during the 2008 financial crisis and following the 2016 Brexit vote,” Fitch said.

In the aftermath of the Brexit vote, six commercial real estate (CRE) funds gated. This time round, 15 CRE funds have so far shut their doors. Most of these were retail funds that offered daily redemptions though a few, such as the £3.4 billion BlackRock UK Property, were aimed at larger institutional clients and offered only monthly or quarterly redemptions. Combined, the gated funds account for roughly two thirds of all assets under management in the UK open-end property fund industry.

Continue reading the article on Wolf Street

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