Rating agency Moody's has published a research note suggesting that Standard Life Aberdeen and Fidelity International will be among the beneficiaries of the stress tests that Esma has announced will apply from September 2020 (https://www.investmenteurope.net/news/4004480/esma-confirms-stress-tests-aifs-ucits ; https://www.investmenteurope.net/investmenteurope/news/3724012/esma-consultation-starts-stress-test-rules-mmfs )
Among the benefits it sees include:
- Portfolio construction - Help ensure the fund is sufficiently liquid, as required by the fund documentation's rules and redemption terms
- Portfolio management - Strengthen the manager's ability to manage fund liquidity in the best interest of investors, including in
planning for periods of heightened liquidity risk; Help identify potential liquidity weakness of an investment strategy and assist in investment decisionmaking
Risk management - Assist risk management monitoring and decision-making, including setting relevant internal limits by the manager
- Stress management - Assist in preparing a fund for a crisis, and in its broader contingency planning
Marina Cremonese, vice president - senior analyst at Moody's, said: "The new stress test requirements are credit positive for asset managers such as Standard Life Aberdeen plc (A3 stable) and FIL Limited (Baa1 stable) because they will contribute to reducing managers' exposure to liquidity shortfalls that can significantly damage firms' brand reputation."
Liquidity mismatches have come to the fore more recently with developments such as the suspension of redemptions from the Woodford Equity Income fund in the UK, Moody's notes.
By addressing such issues, the regulations should facilitate greater stability in earnings in the industry, Moody's note added.