$1.6 Trillion Fund Spots A New, Ticking Time Bomb In The Market
First it was the shocking junk bond fiasco at Third Avenue which led to a premature end for the asset manager, then the three largest UK property funds suddenly froze over $12 billion in assets in the aftermath of the Brexit vote; two years later the Swiss multi-billion fund manager GAM blocked redemptions, followed by iconic UK investor Neil Woodford also suddenly gating investors despite representations of solid returns and liquid assets, and most recently the ill-named, Nataxis-owned H20 Asset Management decided to freeze redemptions.
By this point, a pattern had emerged, one which Bank of England Governor Mark Carney described best when he said last month that investment funds that promise to allow customers to withdraw their money on a daily basis are “built on a lie.”
And now, the chief investment officer of Europe’s biggest independent asset manager agrees with him, because while for much of 2019 the biggest risk bogeymen were corporate credit, leveraged loans, and trillions in negative yielding debt, gradually consensus is emerging that investment funds may be the basis for the next liquidity crisis.
“There is no point denying we are faced with a looming liquidity mismatch problem,” said Pascal Blanque, who oversees more than 1.4 trillion euros ($1.6 trillion) as the CIO of Amundi SA, according to Bloomberg’s Mark Gilbert who in a Bloomberg View piece writes that Blanque told him that the prospect of melting liquidity is one of “various things keeping me awake at night.”
Continuing the discussion of illiquid institutions, Blanque said that market making, where firms generate prices at which they are willing to either buy or sell financial products, is effectively “a public good” (or “public bad”, if it is being done by HFTs who disappear at the first sign of volatility, and them having to take on real positional risk).
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