European alternative investment funds experienced a sharp drop in valuations at the height of the COVID-19 crisis, causing money managers to suspend redemptions.
The European Securities and Markets Authority said in a report published April 8 that the net asset value of alternative investment funds declined by 7%, equivalent to €460 billion ($508.6 billion), in the first quarter of 2020. The largest drop was recorded among hedge funds, the report said.
Valuation issues experienced by some managers led to temporary fund suspensions, with the majority in real estate funds. Most of these funds were based in the U.K. and suspensions were related to valuation uncertainty. However, in several cases the impact of the COVID-19 market stress on real estate funds was not immediately evident. ESMA's analysis of the largest European Union real estate funds — not including the U.K. — showed that 38% of funds or 29% by fund AUM were affected by valuation uncertainties at the end of June, while 42% or 48% by AUM were hit by "material distortions in the incoming cash flows, such as rental income," the report said.
However, most types of funds surged by 10% or more in size in the second quarter of 2020, when fiscal authorities and central banks announced fiscal stimulus as well as large-scale purchases of corporate and government bonds.
