From Funds Europe

Luxembourg

Most of the largest asset managers with funds in Luxembourg apply ‘swing pricing’ – a mechanism that protects shareholders in funds from other investors making redemptions or purchases.

A survey by the Association of Luxembourg Investment Funds (Alfi) finds that two out of three managers who manage a combined $1,900 billion (€1,747 billion) of net assets – or 54% of total assets under management in Luxembourg funds – apply swing pricing.

Alfi, which last surveyed swing pricing in 2011, says the survey shows a trend towards greater adoption of the mechanism.

Swing pricing has two forms. The first is whereby the net asset value (Nav) of a fund adjusts up or down every Nav calculation day based on the direction of net capital activity, regardless of the size of shareholder dealing. This is the “full” method.

The second “partial” method is only invoked when the net capital activity is greater than a pre-determined threshold (often referred to as the “swing threshold”), which is usually set in percentage or basis point terms.

Swing pricing has been applied in Luxembourg for the past 15 to 20 years and has proven to be an efficient mechanism to protect existing shareholders from dilution associated with shareholder purchases and redemptions as well as an additional tool to help funds manage liquidity risks, says Alfi.

Alfi’s survey provides more detailed insights into how swing pricing is applied by asset managers and the challenges associated with it.

The survey was carried out between July and September.

More than half of the asset managers not yet applying swing pricing stated they were in the process of evaluating it, and wanted to understand more about the key principles, drivers and theories.

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