Liquidity cost to drive closed end funds

An industry wide rethink on the cost of liquidity during this year will see an increase in closed-end funds and the incorporation of a range of new protection features such as ‘gates’ and ‘lock-in periods’ in investment products, according to ING Investment Management (INGIM) chief investment officer of asset strategies and alternatives James Wright.

He said he anticipates a “greater focus on the pricing features of products in response to the huge volatility in marked to market pricing we have seen”.

“It is likely that more limitations will be put on investors who were perhaps given too much freedom within products that priced liquidity too cheaply.”

Wright added that institutional hedge funds have incorporated these protections as part of their investment strategy for some time and “we expect to see a greater use of these in retail products”.

The repricing of credit risk will have ongoing consequences for equity returns, according to Wright, with local shares being “unlikely to deliver more than low single-digit returns for the year”.

INGIM’s response had been to adopt a “more defensive stance” across its investment portfolios, including in multi-sector funds, he said.

The recent Australian share market gains “had been too soon and were narrowly based, with the booming mining sector offsetting moderate earnings in the rest of the market”.