Illiquidity Threatens an Early Winter for Funds

The Bank of England and Financial Conduct Authority have stepped up their rhetoric about the dangers posed by funds offering customers daily redemption rights while investing in stuff that may prove hard to sell when times get tough, a Bloomberg View reported. The problem they and their fellow regulators face is that market liquidity is an elusive, contradictory thing: It can be reliably ever-present when it isn’t needed – only to vanish as soon as it’s desperately desired. Bank of England Governor Mark Carney is unequivocal in his condemnation of the status quo. “These funds are built on a lie, which is that you can have daily liquidity for assets that fundamentally aren’t liquid,” he told U.K. lawmakers last month. His ire stems, in part, from local embarrassment. The three most recent high-profile liquidity lapses – GAM Holding AG’s Tim Haywood, Neil Woodford, and H2O Fund Management’s Bruno Crastes – involved investors operating out of the U.K. Read more