Regulators boost mutual fund borrowing limits

The move is designed to provide funds with more access to liquidity if they need it to meet investor redemption demands.

“Given the extraordinary circumstances created by the pandemic and their impact on fixed income markets, the CSA is temporarily increasing [the short-term borrowing limits] to help facilitate a more orderly liquidation of any fixed income securities that might be required to accommodate redemption requests,” the CSA said in a release.

The temporary relief will apply from April 17 to July 31, and is available to any mutual fund that invests some portion of its assets in fixed income. This includes funds that are predominantly equity funds, which nevertheless hold a portion of their assets in fixed income securities.

“Investment fund managers are currently dealing with liquidity challenges in the fixed income markets,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers.

“This relief gives fund managers greater flexibility to manage their portfolios in the best interests of all investors, while continuing to meet investor expectations for liquidity,” he said.

The CSA said the relief is also subject to several conditions, including that any extra borrowing is “in the best interest of all investors.”

It also imposes strict controls on additional borrowing, and requires funds to disclose their use of any added borrowing to investors.

“Prior to making use of this relief, the CSA expects fund managers to consider all available tools and techniques that can be employed to manage liquidity during the current stressed market conditions,” it said.

“The CSA is closely monitoring the situation and will consider whether further relief or an extension is necessary,” it said.