SEC Staff Suggests Steps for Fixed Income Fund Advisers to Consider in Addressing Changing Market Conditions

The Staff of the SEC’s Division of Investment Management issued IM Guidance Update 2014-1 which suggests risk management measures and related communications with fund boards that fund advisers may want to consider in view of changing conditions in the fixed income markets.   Among the risk management measures discussed are the following: (1) assessing fund liquidity and conducting stress tests over varying time periods; (2) assessing other potential stress scenarios, such as interest rate hikes, widening spreads, price shocks to fixed income products, increased volatility and reduced liquidity; and (3) analyzing the foregoing assessments to develop appropriate risk management strategies at a fund or complex level, potentially involving portfolio composition, concentrations, diversification and liquidity. The Update also suggests that fixed income funds should assess the adequacy of their disclosures to shareholders in light of any additional risks due to recent events in the fixed income markets and the potential impact of tapering quantitative easing and/or rising interest rates, including the potential for periods of volatility and increased redemptions.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Topics:  Fixed Income Investments, Investment Adviser, Investment Funds, SEC

Published In: Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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