Open-end funds must be able to meet their redemption obligations as and when they fall due. For daily dealing funds, this means being able to immediately sell a portion of the fund’s assets and meet investor redemptions within a three to four day settlement period.
Comprehensive liquidity monitoring needs to include consideration of:
- the liquidity profile of the assets (including regard to settlement timeframes); and
- investor dealing activity.
The regulatory requirements for liquidity risk management, monitoring and reporting have significantly increased in recent years, with new provisions in, for example, AIFMD, UCITS IV and also US SEC Rule 22e-4 on Liquidity Risk Management Programmes.