Fund Operator: How did your team cope with the recent market volatility?

Dean Chisholm: In Hong Kong, the actual market volatility happened two months later at the back end of March when the rest of the world decided that they had Covid-19, and then started to take measures.

This volatility certainly saw substantial volume increases and problems with the US credit market, which caused pricing problems with defaults in various territories, including places like India.

Fund Operator: What are the challenges to effectively gain access to high quality and timely data, leveraging market opportunities, protecting investor investment performance, increasing frequency of client communications or managing liquidity considerations?

Dean: When the US credit market went a bit wild at the end of March it certainly presented problems, particularly if you had substantial investments in senior subordinate debt, as there were issues on pricing and discounts, albeit not as large as 2008.

"Credit also became an issue in some Asian markets."

There were still issues that caused pricings on liquidity, in terms of finding buyers or sellers and pricing on the funds themselves.

Credit also became an issue in some Asian markets. We have a business in India and there was one morning where you couldn’t buy or sell Indian treasuries on the market for at least 45-minutes, which is not what you want in markets that are priced daily and traded daily with same day redemptions from money market funds.

For a subsequent period, we had fair value price funds, and no one really likes fair valuing, but it does have to be done in these periods and is obviously a manual process.

When you have these price volatilities, there’s potential for large inflows and outflows of funds, and you have to stop and think about gating if you have a liquid asset below that.

"No one really likes fair valuing, but it does have to be done in these periods"

There are various assets that have gating facilities, although these are processes again that no one particularly likes to use but it does have to be done in the best interests of the investors.

There is also the challenge around client communications as you have to be proactive and get out to the clients, especially those with portfolios in these sectors, to explain what is going on and what options they have to overcome.

The typical reaction of nervousness - which leads to redeeming - often isn’t in their best interests.

Fund Operator: What lessons have you learnt for future periods of volatility?

One thing that this pandemic did reinforce is the focus on clients and what they want, or you don’t have a product.

"We need to prioritise the client and what they want."

We realised that some things we had been doing weren’t really that important, so we asked why we were continuing to do them.

This type of questioning will continue quite heavily in the future because we need to prioritise the client and what they want.

 

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