The Staff of the SEC’s Division of Investment Management issued IM Guidance Update 2014-1 which suggests risk management measures and related communications with fund boards that fund advisers may want to consider in view of changing conditions in the fixed income markets. Among the risk management measures discussed are the following: (1) assessing fund liquidity and conducting stress tests over varying time periods; (2) assessing other potential stress scenarios, such as interest rate hikes, widening spreads, price shocks to fixed income products, increased volatility and reduced liquidity; and (3) analyzing the foregoing assessments to develop appropriate risk management strategies at a fund or complex level, potentially involving portfolio composition, concentrations, diversification and liquidity. The Update also suggests that fixed income funds should assess the adequacy of their disclosures to shareholders in light of any additional risks due to recent events in the fixed income markets and the potential impact of tapering quantitative easing and/or rising interest rates, including the potential for periods of volatility and increased redemptions.
For more information about the contents of this alert, please contact:
Elizabeth Shea Fries
Consumer Financial Services
© 2014 Goodwin Procter LLP. All rights reserved. This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided with the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin Procter LLP, Goodwin Procter (UK) LLP or their attorneys. Prior results do not guarantee similar outcome.
Goodwin Procter LLP is a limited liability partnership which operates in the United States and has a principal law office located at 53 State Street, Boston, MA 02109. Goodwin Procter (UK) LLP is a separate limited liability partnership registered in England and Wales with registered number OC362294. Its registered office is at Tower 42, 25 Old Broad Street, London EC2N 1HQ. A list of the names of the members of Goodwin Procter (UK) LLP is available for inspection at the registered office. Goodwin Procter (UK) LLP is authorized and regulated by the Solicitors Regulation Authority.