Dozens of northern funds have suspended transactions, preventing investors from withdrawing, reflecting intense tension in the high-yield corporate debt markets during the coronavirus crisis and the difficulty of funds in responding to redemption requests.
Danske Invest, the asset management arm of Denmark’s largest lender, 15 Danish funds were suspended on Friday, most of them in high-yield bonds. Carnegie Fonder in Sweden blocked 12 funds, mostly corporate bonds, on Friday, while Norwegian high-yield fund Forte Kreditt was suspended last week. Other fund managers such as Spiltan, Cicero and Danske in Sweden and Jyske in Denmark all suspended their funds last week.
These measures come at a time when there is growing concern that a wide range of funds around the world are struggling to function during this unprecedented period of market pressure, trapping investors in loss-making vehicles.
“I receive messages from desperate people. They received advice from their private banker or fund manager that they were safe and they can’t believe they are down 20% and they still can’t get out, “said Peter Warren , a well-known Norwegian private investor and expert on the local high-yield market.
Regulators have become nervous that huge reductions in the price of corporate debt and severe difficulties in determining the actual market price of certain corporate bonds make it difficult for fund managers to produce a reliable measure of how much money their customers have lost, or respond to, a wave of cash withdrawal requests. The Swedish financial regulator expressed concerns last Thursday.
The question is not specific to the Nordic countries; several UK real estate funds have taken a similar step due to difficulties in determining reliable prices for their underlying assets.
“We understand that this can create inconvenience for those who planned to exchange funds at that time. For us as a fund manager, this is a very unfortunate decision, but to act differently would be irresponsible, “said Hedstrom, CEO of Carnegie Fonder, on Saturday. Carnegie hopes to reopen funds on Monday.
Other local fund managers and industry organizations have agreed that suspensions are the best way to protect investors from the wild market swings experienced last week as a result of the coronavirus pandemic.
“The suspension is a temporary measure to protect investors in a situation where it is not possible to find a fair and precise price for the fund,” said Birgitte Sogaard Holm, Executive Director of Investments and Savings at Finance Denmark , an organization of the sector.
Forte, a fund manager in Trondheim in central Norway, told investors that it has been “very difficult” to trade in securities in his credit fund.
Warren said naive private investors have bought funds in recent years without understanding the risks. “It’s a big problem. We experienced this during the financial crisis when we saw the shortcomings of the high-yield market, ”he said.
Some hope that central banks can offer some support by buying corporate bonds. Riksbank, Sweden’s central bank, announced Thursday that it will add corporate debt to its bond buying program.