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Laxman Pai, Opalesque Asia:

European Union financial regulator European Securities and Markets Authority (ESMA) said that fund managers must strengthen their processes to avoid a repeat of the weaknesses exposed by the coronavirus market shock.

ESMA has published a report on the preparedness of investment funds with significant exposures to corporate debt and real estate assets, warning managers to buckle up for potential future adverse liquidity and valuation shocks.

Among other things, the recommendations cover aligning funds' investment strategy, liquidity profile, and redemption policy; ongoing supervision of liquidity risk assessments and valuations; and increasing the availability of liquidity management tools.

Steven Maijoor, chairman of ESMA, voiced concerns that asset managers, particularly those exposed to hard-to-sell corporate debt and real estate assets, were not prepared for dealing with a rush of investor redemption requests or valuation uncertainty prompted by fresh market ructions.

He reported that a coordinated supervisory exercise "revealed shortcomings that must be addressed in order to enhance funds' preparedness to future shocks."

"We have identified a number of priority areas that funds and supervisors should focus on to address potential liquidity risks in the fund sector. This will contribute to ensuring investor protection, orderly markets, and financial stability," he said.

"We also encourage swift proposals to amend the E......................

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