LONDON, Oct 3 (Reuters) - BlackRock, the world’s biggest asset manager, has told the Financial Stability Board it supports plans to stress test individual mutual funds to make sure they function properly during extreme market environments.
Global regulators are concerned about the ability of funds to function during periods of stress -- including being able to pay back investors -- and had asked leading industry participants to respond to proposed rule changes.
In June, the FSB, set up after the financial crisis to ensure the stability of the financial system, proposed 14 measures to be implemented from the end of 2017, including monitoring leverage and stress-testing.
In a Sept. 21 letter to the FSB posted on its website, BlackRock said “we believe there is merit in developing principles for the stress testing of individual open-end funds”, but rejected any form of system-wide stress test.
The asset manager said it was important to remember that the liquidity stress testing of funds was different to that of banks, with managers needing to avoid a fire sale of assets to meet redemptions.
“Liquidity risk stress testing is one tool that can be helpful to ensure fund managers are maintaining appropriate liquidity,” it said in the letter.
The issue of liquidity was highlighted earlier this year by the failure of a junk bond fund run by U.S. asset manager Third Avenue, whose illiquid assets could not be sold quick enough to meet redemption requests, leading it to shut down. (Reporting by Simon Jessop, editing by Louise Heavens)