There could be a mismatch between the redemption timeframe which funds offer to their investors, and, on the other hand, the real possibility to sell off underlying assets. This is a concern voiced by the European Securities and Markets Authority (ESMA) in its fourth annual statistical report on the alternative investment fund sector (AIF).
Yes, the numbers of the report may be served with too much delay to generate astonishment, but nevertheless … The European Economic Area, of 30 member nations, saw its AIF sector grow its net assets by 8 percent in 2020, landing at 5.9 trillion euro.
“The main risk faced by the sector relates to a mismatch between the potential liquidity of the assets, and the redemption timeframe offered to investors. While at aggregate level this mismatch is unlikely to materialise, it indicates that AIFs with a liquidity deficit would face challenges if large redemptions were to occur. This is particularly the case for real estate funds and funds of funds,” ESMA notes in its press release which also carries a link to the 80-page report itself.
Back in 2019, certain events highlighted the risk that investors may not get their money out when they want it. A suspension of redemptions to investors by Britain’s Woodford investment fund, and a subsequent suspension of trading in a property fund with manager M&G, were among them, as we noted in this article.