Be Aware of Concentration

Updated: Apr 13, 2019

Being aware of the nature of your investor and how concentrated the holding is among investors, is one of the implicit or explicit asks of the Money Market Fund Regulation.


That is because redemption by a few investors of significant heft can cause a fund to sell assets to raise cash and meet the redemptions. But the resultant drop in asset prices can cause a conflagration and contagion which is what regulation seeks to control or limit.


Let us to UCITS, commonly known as mutual funds. There is no mention of investor concentration in UCITS as far as our research could tell and we are eager to be corrected on that.


Short of that, it would seem that since UCITS are essentially retail, there is a lower probability of one investor triggering a run.


MMFR asks Fund Managers to be aware of investors who share characteristics. If their need for liquidity is triggered by a single event that impacts that group, then redemptions could happen at a destabilizing scale. Hedge Funds spring to the mind. Prime Brokers who serve Hedge Funds as custodians of their liquidity form another such group. And so on.


It is conceivable that the same happens with UCITS (Mutual Funds) if a fund markets to too narrow a community or socio-economic profile.


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