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Aki Corsoni-Husain
Aki Corsoni-Husain
  • Aki Corsoni-Husain

  • Partner
  • Cyprus
George Apostolou
George Apostolou
  • George Apostolou

  • Partner
  • Cyprus
Chiara Deceglie
Chiara Deceglie
  • Chiara Deceglie

  • Partner
  • Luxembourg
Massimiliano della Zonca
Massimiliano della Zonca
  • Massimiliano della Zonca

  • Senior Associate
  • Luxembourg
Philip Graham
Philip Graham
  • Philip Graham

  • Partner
  • British Virgin Islands
Ayana Hull
Ayana Hull
  • Ayana Hull

  • Counsel
  • British Virgin Islands
Katerina Katsiami
Katerina Katsiami
  • Katerina Katsiami

  • Associate
  • Cyprus
Andrew Knight
Andrew Knight
  • Andrew Knight

  • Partner
  • Luxembourg
Joshua Mangeot
Joshua Mangeot
  • Joshua Mangeot

  • Counsel
  • British Virgin Islands
Mirza Manraj
Mirza Manraj
  • Mirza Manraj

  • Counsel
  • Hong Kong
Elina Mantrali
Mirza Manraj
  • Elina Mantrali

  • Associate
  • Cyprus
Vanessa Molloy
Vanessa Molloy
  • Vanessa Molloy

  • Partner
  • Luxembourg
Andrea Moundi Savvides
Andrea Moundi Savvides
  • Andrea Moundi Savvides

  • Consultant
  • Cyprus
Matt Taber
Matt Taber
  • Matt Taber

  • Partner
  • Cayman Islands
Carolynn Vivian
Carolynn Vivian
  • Carolynn Vivian

  • Group General Counsel
  • Cayman Islands

ESMA report: Fund managers to prepare for future adverse shocks

On 13 November 2020, the European Securities and Markets Authority (ESMA) published a report on the preparedness of investment funds with significant exposures to corporate debt and real estate assets, for potential future adverse liquidity and valuation shocks.

This report sets out ESMA's analysis and conclusions of the investment funds that were reviewed and presents five priority areas identified to enhance the readiness of these investment funds:

  1. Ongoing supervision of the alignment of the funds’ investment strategy, liquidity profile and redemption policy
  2. Ongoing supervision of liquidity risk assessment
  3. Fund liquidity profiles
  4. Increase of the availability and use of liquidity management tools (LMTs)
  5. Supervision of valuation processes in a context of valuation uncertainty

ESMA coordinated a supervisory exercise with national financial regulators involving collecting and analysing data on funds exposed to corporate debt and to real estate. The exercise showed that the funds in question managed to respond adequately to redemption pressures. However, the work also revealed shortcomings that must be addressed in order to enhance funds’ preparedness to future shocks, and identified a number of priority areas that funds and supervisors should focus on to address potential liquidity risks in the fund sector. 

Concerns around the valuation of portfolio assets have clearly emerged, especially for real estate funds for which the crisis could have a more significant impact over the longer term. Moreover, real estate funds do not frequently adopt LMTs in their liquidity set-up. Against this background, fund managers authorised under UCITS and AIFM Directives should enhance their preparedness to potential future adverse shocks that could lead to a deterioration in financial market liquidity and valuation uncertainty.  

In response to the COVID-19 crisis, ESMA has reinforced its coordination role regarding investment fund supervision through the organisation of frequent exchanges with NCAs to discuss market developments and supervisory risks, in particular on liquidity issues.

ESMA’s report can be found here.

The press release can be found here.