Liquidity Risk Management for Funds: Part 2: Best Practices for Stress Testing
categories: Americas, Asia Pacific, Australia, EMEAI, BOHAK Andras, HOLLO Laszlo, Asset Allocation and Asset Liability Management, Investing (Investment Management), Portfolio Construction and Optimization, Risk Management, Asset Managers (Quant or Fundamental), Hedge Funds, Risk Management Analytics, Credit, Equities, Fixed Income, Multi-Asset Class
This is the second in a series of research papers proposing MSCI’s best practices for fund liquidity risk management. Here we propose best practices for liquidity stress testing at funds, drawing on guidelines from the European Securities and Markets Authority for undertakings for the collective investment in transferable securities (UCITS) and alternative investment funds. When designing market stress tests, we create both historical and hypothetical scenarios. Both cover at least three levels of severity from moderate to extreme.
Access our research paper Liquidity Risk Management for Funds Part 1: Dilution Effects for more insights, and refer to a wide range of regulatory risk solutions including upcoming ESMA stress testing guidelines.