To Safeguard Global Financial Stability, Boost the Resilience of Investment Funds

2021-10-12T14:45:30-04:00September 17, 2021|

By Tobias Adrian, Antonio Garcia Pascual, Ranjit Singh, and Jay Surti

عربي, 中文, Español, 日本語, Português, Русский

Investment funds were hit hard by the pandemic; their response amplified its adverse impact on financial markets and capital flows.

Our brush last year with one of the biggest economic shocks of our lifetimes revealed some fundamental vulnerabilities that could affect global financial stability. Caught up in the financial market turmoil generated by risk averse investors, many investment funds were heavily affected by the “dash-for-cash” that extended across borders—and which triggered significant outflows from risky assets and from emerging and developing economies. As this happened, and investor capital flowed out of money market and open-end mutual funds, asset managers were forced to fire-sell these assets, which accelerated the drying up of liquidity and the drop in market value of key assets.

Our policy recommendations would be wins for both issuers and investors alike, more than offsetting any adjustment costs borne by them.

To safeguard financial stability at the national and global levels—and better protect markets and economies from crippling capital outflows—we need to boost the resilience of investment funds. A key part of this involves reducing the […]