On 26 March 2021, the Bank of England and the FCA published the findings of their joint survey of liquidity management in UK-authorised open-ended funds. The joint survey was launched in August 2020, and covered a reporting period from Q4 2019 to Q2 2020, incorporating the extreme market conditions in March 2020 in the wake of COVID-19 pandemic.

The survey provides a number of important insights into funds’ liquidity management including:

• Funds have a wide range of liquidity tools available to them, but predominantly use swing pricing. Almost all surveyed funds had liquidity management tools in place and used them more intensively during the stress period. However, tool selection and trigger points for their usage, and some pricing adjustment calculations, tended not to be fund-specific, but often set for fund families or at fund manager level.
• Funds intensified and adapted their use of swing pricing during the stress period, although there were large variations in how swing pricing was applied. These variations were explained in part by differences in primary strategies, but not entirely. Funds reported different thresholds for applying swing pricing, and differences in whether and how they chose to change these thresholds in the stress period.
• In addition to the use of liquidity management tools, funds managed their liquidity by holding liquidity buffers in the form of cash and non-cash liquid assets. The two most common non-cash assets held for liquidity purposes were units in money market funds (MMFs) and UK government bonds.
• Some funds adapted their liquidity management approaches and governance measures temporarily or permanently in response to the COVID-19 stress. While fund managers stated that their processes worked well overall under stress, many made changes or launched reviews of their processes.
• An indicative liquidity classification suggests that managers of corporate bond funds may be overestimating the liquidity of their holdings. Managers of some of these funds considered a large proportion of their holdings to be liquid in almost all market conditions, and most funds considered the majority of their holdings to have ‘high valuation certainty’. Liquidity conditions for corporate bonds, particularly in market stress times, would indicate otherwise.