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Managed funds coped with COVID-19: ASIC

An ASIC review of retail managed funds found that they effectively coped with the challenges presented by COVID-19.

ASIC found managed funds largely did not face serious investor liquidity challenges during the height of COVID-19 market disruptions and that their liquidity frameworks were generally adequate.

While there was a significant drop in net investor cashflow in the first half of 2020, ASIC reported that responsible entities of these funds did not tighten members' ability to withdraw their investments.

The review looked at four mortgage funds, five direct property funds and five fixed income funds between June and November 2020.

These funds accounted for $1.7 billion in assets under management and more than 8000 investors had money in them.

ASIC specifically chose to review these funds because it feared they were exposed to liquidity risks due to a mismatch between investor expectations and potential desire to exit and the liquidity of the fund assets in a financial stressed market.

ASIC found that across all the funds there was less cash received from investor applications versus cash paid out in investor redemptions during the first half of 2020.

The average net investor cash flow declined from 19% of the funds' net asset value in the last quarter of 2019 to 3% in the first quarter of 2020, before a moderate recovery to 6% in the second quarter of 2020.

"However, this deterioration had little to no negative impact on investor redemption opportunities or on the size and frequency of distributions paid to investors," ASIC said.

"There was no material decrease in the liquidity of fund assets over the first half of 2020."

ASIC said its findings were consistent with feedback from industry associations.

"Overall, the responsible entities we reviewed well managed the liquidity challenges and market disruption of COVID-19. As the economic situation improves through 2021, responsible entities should continue to carefully manage the liquidity risks associated with their funds," ASIC deputy chair Karen Chester said.

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

Read more: ASICKaren Chester