Dozens of Nordic funds have suspended trading, blocking investors from pulling out in a reflection of the intense strain in high-yield corporate debt markets during the coronavirus crisis and the challenge to funds in meeting redemption requests.
Danske Invest, the asset management arm of Denmark’s biggest lender, had 15 Danish funds suspended on Friday, most of them in high-yield bonds. Carnegie Fonder in Sweden gated 12 funds on Friday, mostly in corporate bonds, while Forte Kreditt, a Norwegian high-yield fund, was suspended all of last week. Other fund managers such as Spiltan, Cicero and Danske in Sweden and Jyske in Denmark all suspended funds last week.
The moves come at a time of growing concerns that a wide range of funds around the world will struggle to operate during this period of unprecedented market pressure, trapping investors in lossmaking vehicles.
“I get messages from people that are desperate. They got advice from their private banker or fund manager that these were safe and they can’t believe they’re now down 20 per cent and they still can’t get out,” said Peter Warren, a well-known Norwegian private investor and expert on the local high-yield market.
Regulators have grown nervous that huge drops in the price of corporate debt, and severe challenges in determining the true market price of some corporate bonds, make it hard for fund managers to produce a reliable measure of how much money their clients have lost, or to fulfil a wave of requests to pull money out. Sweden’s financial regulator raised concerns about the matter last Thursday.
The issue is not specific to the Nordics; several UK property funds have taken a similar step due to difficulties in determining reliable prices for their underlying assets.
“We understand that this can create inconvenience for those who planned to trade in the funds in those days. For us as a fund manager, this is a very regrettable decision but to act differently would be irresponsible,” Hans Hedstrom, chief executive of Carnegie Fonder, said on Saturday. Carnegie is hoping to reopen funds on Monday.
Other local fund managers and industry bodies agreed that the suspensions were the best way to protect investors from the wild swings in the market experienced in the past week due to the coronavirus pandemic.
“Suspension is a temporary measure to protect investors in a situation where it is not possible to find a fair and accurate price of the fund,” said Birgitte Sogaard Holm, executive director of investments and savings at Finance Denmark, an industry body.
Forte, a fund manager in Trondheim in central Norway, told its investors that it had been “very difficult” to trade the securities in its credit fund.
Mr Warren said naive private investors had bought into the funds in recent years without understanding the risks. “It is a big deal. We experienced this during the financial crisis when we saw the shortcomings of the high-yield market,” he said.
Some are hoping that central banks will be able to offer some support by buying corporate bonds. The Riksbank, Sweden’s central bank, said on Thursday that it would add corporate debt to its bond-buying programme.
Kim Pilgaard, investment specialist at Danske Invest, said the number of suspended funds was unusually high and that he understood any frustration of investors — but added that it was done to protect them.
“It is our impression that high-yield funds typically experience more frequent suspensions during periods of extreme market conditions,” he added. “In our opinion this reflects the nature of the asset class and the market for the underlying securities.”