Money managers must prepare corporate debt and real estate strategies for future adverse liquidity and valuation shocks, Europe's top supervisory authority warned.
The European Securities and Markets Authority published a report Friday on how prepared investment strategies that have significant exposures to corporate fixed-income and real estate assets are for future shocks, such as the impact of the COVID-19 pandemic.
ESMA conducted a supervisory exercise with national securities regulators by analyzing strategy data for the period Feb. 17 to March 31, the report said.
The strategies in the sample "managed to respond adequately to redemption pressures" associated with the pandemic, said Steven Maijoor, chairman of ESMA, in a statement accompanying the report. "However, the work also revealed shortcomings that must be addressed in order to enhance funds' preparedness to future shocks, and we have identified a number of priority areas that funds and supervisors should focus on to address potential liquidity risks in the fund sector."