Aversion therapy

26 June 2014 By Neil Unmack, Daniel Indiviglio Follow @unmack1

These vehicles now manage $3.3 trln, double five years ago. Investors can pull their money out quickly, which means a rush for the exits could cause panic. Imposing redemption fees is one solution. Holding more cash and restricting rapid withdrawals would be more effective.

This content is for Subscribers only

Context News

Bond funds now manage some $3.3 trillion, according to Investment Company Institute data. That represents a growth of 100 percent in the five years to March.

Recently departed Federal Reserve Governor Jeremy Stein delivered a speech on Feb. 28 that addressed potential bond market disruptions that could result from a run on these funds. He said that although a fund’s liabilities are not technically debt claims, they are still demandable and investors can pull out very rapidly if an early-mover advantage exists. He suggested exit fees on open-ended funds as a possible regulatory fix.

Email a friend

Please complete the form below.

Required fields *