IMF warns funds holding illiquid assets risk undermining financial stability

Woodford-style run poses vulnerabilities

The International Monetary Fund has warned that an investor run from daily-dealing open-ended funds with hard-to-sell assets in periods of market stress could threaten global financial stability.

The international body singled out less frequently traded securities such as corporate bonds, certain emerging market assets and real estate as posing the most risk in a sudden surge of significant outflows sparked by market volatility.  In a blog post, the IMF wrote on Tuesday (4 October) that in a period of heavy outflows, a "liquidity mismatch" might be a major issue for fund managers. "Pressures from these investor runs could force funds to sell assets quickly, which would further depress valuations. That in turn would amplify the impact of the initial shock and potentially underm...