Offering investors daily liquidity should not be a “mantra” and asset managers should take a more balanced, flexible approach to funds, according to the chief executive of Natixis Investment Managers.
“I just do not understand anymore why we continue to make daily liquidity in collective investment vehicles, in mutual funds, call it the way you want, a mantra,” said Jean Raby, speaking on a panel at a conference organised by the European Fund and Asset Management Association on 12 November.
“When we advocate to clients [to] think about financial markets in the long term, that you should put capital to work in the equity markets…for the long term, is liquidity really that consistent with the underlying message?”
Raby’s comments come amid increased scrutiny over fund liquidity, and in the wake of some of the UK’s largest property funds suspending withdrawals as a result of the Covid-19 pandemic. Daily fund liquidity also gained prominence following the suspension of Neil Woodford’s flagship Equity Income fund in June 2019.
Woodford’s fund, which at its peak oversaw £10bn, had a high exposure to unquoted companies. It was forced to suspend in June 2019 to allow the former star fund manager to sell off some of the most illiquid stocks to meet redemption requests.
In the wake of Woodford’s fund suspension, Mark Carney, then Bank of England governor, claimed investment products offering daily liquidity while investing in illiquid assets were “built on a lie”.
Instead, Raby, whose asset management business oversees just over $1tn in assets, said that it’s about offering investors “variety”.
“You can have daily liquidity, but there also should be a promotion of less than daily liquidity funds to invest in the long term, more of a balanced flexible approach,” Raby said.
On 5 November, French bank Natixis said that Natixis IM and H20 Asset Management, one of its subsidiaries, were in discussions concerning the “progressive and orderly unwinding of their partnership”. Concerns had been raised about the liquidity of certain corporate bonds H20’s Allegro fund holds.
Naim Abou-Jaoudé, the CEO of Franco-Belgian asset manager Candriam, who was also speaking on the panel, agreed with Raby.
“The short term horizon of our system vis-à-vis the long term investment, I think is key for companies, asset managers and for the financial system,” he said.
In August, the UK regulator put forward proposals to overhaul the UK property fund sector, including a requirement that investors give up to six months’ notice before withdrawing their money.
The Financial Conduct Authority said the new rules would help bridge the “liquidity mismatch”, whereby investors are able to buy and sell units in these funds on a frequent basis despite this not being mirrored in property.
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