July 5, 2022

Finance & Economy

Let's Talk About Investment

J.P. Morgan, Danske Bank freeze funds exposed to Russian assets

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The moves occurred during a turbulent day for financial markets after a new wave of sanctions against Russia for invading Ukraine were unveiled over the weekend. Countries across the globe moved to isolate Russia from global finance by introducing measures including preventing its central bank from using much of its foreign reserves and excluding some Russian banks from the SWIFT messaging system that facilitates trillions of dollars worth of transactions.

Russia attempted to shield its economy and took steps including banning brokers from selling securities held by foreigners.

J.P. Morgan’s Russia fund is down 21% this year before Monday, while its Emerging Europe Equity fund was down 22%. Danke’s fund has fallen almost 34% this year through Feb. 25. The Liontrust Russia fund is down 24% this year.

The new sanctions hammered funds managed by some of Europe’s largest asset managers, including Amundi and Schroders, where strategies were either focused solely on Russia or had heavy exposure to companies based in the country. More funds are expected to follow suit and shut their doors to redemptions.

Voya Financial warned investors Monday that the sanctions and the threat of further restrictions on Russia might require its Russia-focused fund to freeze investments. The fund, which normally invests at least 80% of its assets in Russian equities, has declined 44% this year to Feb. 25.

The Schroder ISF Emerging Europe fund, which oversees €576 million ($649 million) and has 55% exposure to Russian companies, is down 35% this year, according to data compiled by Bloomberg. A Russia-focused Lyxor exchange-traded fund, now managed by Amundi, is down more than 60% year to date, Bloomberg data show.

“If a fund is a daily dealing fund, it will need to produce a daily net asset value.” said Jonathan Miller, director of manager research ratings at Morningstar. “Given how things stand, it could prove tricky. The last resort, would be to suspend dealing.”

Stopping investors from accessing their money from daily dealing funds is rare, even in the wake of broad macro events.

U.S.-based Reserve Management delayed redemptions from a cash pool during the financial crisis. Credit Suisse Group and Nomura Holdings liquidated investment products that made bets against market volatility in February 2018. Several U.K. property funds stopped client withdrawals after the Brexit vote in 2016, and again during the pandemic in 2020.

Russian equities made up 0.27% of long-term European assets in funds and ETFs, or €32.8 billion of the €12 trillion of total assets as of Jan. 31, according to data compiled by Morningstar.