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Alternative Market Briefing

Other Voices: Liquidity mechanics of funds have been stress-tested, more managers are reviewing suspension provisions to allow future flexibility - Ogier

Tuesday, December 08, 2009

This article was written by Nadia Menezes, Senior Associate at law firm Ogier.

The market turbulence over the last twelve months has seen fund structures and mechanics being strenuously tested under extreme conditions. Whilst there were a number of fatalities, many more funds have been able to survive than market commentators had suggested might otherwise be the case. Unfavorable market conditions have stress-tested many of the traditional liquidity mechanics in fund documents and understanding these mechanisms could make your fund more robust should more difficult times return.

Having had the suspension provisions contained within a fund's constitutional and offering documents tested with varying degrees of success, fund advisers are re-examining the drafting of suspension provisions in order to obtain more clarity, achieve greater flexibility for the fund and implement more robust provisions.

More funds are incorporating greater flexibility within their suspension provisions to allow for the suspension of all or a combination of the calculation of net asset value, subscriptions or redemptions of shares so as to allow funds the flexibility to suspend redemptions while continuing to calculate net asset value and take on new investors, if circumstances permit. This is particularly important in situations where the value of the underlying assets of the fund is still capable of being calculated......................

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