ASIC finds Retail funds managed COVID Crisis

A review of 14 managed funds has found they managed market mayhem in early 2020.

Australian Securities & Investments Commission deputy chair Karen Chester.

The corporate regulator has given the tick of approval to 14 managed funds, finding they navigated a potential liquidity crunch caused by the COVID market meltdown.

The review by the Australian Securities & Investments Commission found funds bulked up on liquid assets such as cash in a bid to meet withdrawals and redemptions, all while suffering a drought of new cash coming in the door.

ASIC found that funds effectively grappled with a significant hit to investor cashflow in the first half of last year without resorting to tightening members’ ability to withdraw funds.

The regulator conducted the review between June and Nov­ember last year to scrutinise any potential liquidity issues managed funds faced in the pandemic period. The review covered 14 registered funds, including four mortgage, five direct property and five fixed-income funds.

ASIC selected the 14 funds, with $1.7bn under management, due to identifying them as being at risk of liquidity issues.

The funds, which represented almost 8500 investors, experienced a significant deterioration in cash received in the period, declining 19 per cent in the last quarter of the 2019 financial year.

ASIC found this was followed by a 3 per cent decline in cashflow in the first quarter of the 2020 financial year, before a 6 per cent rebound in the second quarter. It found that, ­despite this, there was little to no deterioration in investor redemption opportunities.

“The responsible entities’ liquidity frameworks were generally adequate,” ASIC said.

“All funds had multiple ways available to manage investor liquidity, such as the right to suspend or stagger redemptions, to charge and adjust redemption fees and to borrow money to pay redemptions.”

ASIC found the most liquid assets of four monitored mortgage funds actually increased from 4 per cent of funds’ assets by June 30, 2019 to 5.6 per cent by the following year.

This was compared with the least liquid assets in the funds decreasing from 80.7 per cent of the funds’ asset value to only 68.6 per cent by the following year.

“All funds had multiple ways available to manage investor liquidity, such as the right to suspend or stagger redemptions, to charge and adjust redemption fees and to borrow money to pay redemptions,” ASIC said.

The review from ASIC comes after the regulator reminded responsible entities of their liquidity monitoring requirements.

ASIC deputy chair Karen Chester said she was pleased funds had managed liquidity challenges and market disruption.

“As the economic situation improves through 2021, responsible entities should continue to carefully manage the liquidity risks associated with their funds,” she said.

“We will continue to monitor liquidity management by responsible entities and may take compliance or other action where we find misconduct.”