Exclusive: Coronavirus volatility sees Luxembourg tighten fund redemption scrutiny


Luxembourg, the European Union’s largest investment hub has tightened its disclosure rules in the face of market volatility caused by the coronavirus and asked funds to disclose whenever client demand to exit exceeds 10% of total assets.

Markets have been roiled across the globe as governments lock down citizens to try to halt the spread of the virus, teeing up economic recession and prompting some investors to withdraw their cash until markets calm down.

A number of funds have already suspended trading as a result of the volatility, and Luxembourg regulator the Commission de Surveillance du Secteur Financier (CSSF) has written privately to fund firms to demand they alert it on a daily basis if redemptions hit double-figures.

More than 4.7 trillion euros ($5.13 trillion) of assets are invested in Luxembourg-domiciled funds, making it the biggest asset management hub in the EU, the country’s government says.

CSSF confirmed in a statement it had contacted the 60 biggest asset managers domiciled in Luxembourg on March 10 for initial information, and followed this with a March 13 update in which it provided a standard template for firms to report redemptions above 10%.

That circular asked recipients to alert the CSSF of any daily redemptions above 10% and any weekly redemptions above 30%, as well as other developments in relation to managed funds, such as new or emerging operational or liquidity issues, it said.

“We are in regular contact with investment fund managers, including the largest 60 managers with activities in Luxembourg, to assess any material impact on their funds,” the CSSF said.

“At present, we believe the use of existing liquidity management tools, as advocated by the CSSF and international bodies, are working appropriately, and that funds are able to operate as intended and in the best interest of investors.”

The CSSF did not disclose how many funds, if any, had reported any redemption breaches under the new rules, which follow a raft of suspensions of British property funds and of equity and credit funds across the Nordic region and in France.

Nicolas Mackel, chief executive at Luxembourg for Finance, the development agency for the country’s financial sector, said he had heard several high-yield bond funds and money market funds had suffered redemptions, but that “it seems to be, at this stage, relatively quiet on that front”.

Xavier Parain, Chief Executive at FundRock Management, which provides risk management and back office functions to around 100 fund managers, said he had received the communication from the CSSF and considered the approach wise.

“They are asking questions around funds suffering big redemptions, gates and problems with valuation – they’re asking for daily feedback on all this,” he said.

Over the last two weeks, Parain said he had heard of a handful of funds in Luxembourg forced to temporarily suspend trading to ensure fair pricing of the funds, and the firm had scaled up its own checks on fund liquidity.

“In these market conditions, more managers are using these tools to ensure fair valuations for clients… For me it’s good market practice,” Parain added.