Pilot on fund liquidity reporting now live at Lannebo Fonder

As both AIF:s and UCIT:s funds now must report a liquidity ladder on a quarterly basis to the national competent authority, a number of problems needs to be addressed. What assumptions are needed to assess the number of days it takes to sell a position? How do you handle non-frequent traded products? Are you allowed to assume partial sale of assets during the number of days until the position is closed?

As both AIF:s and UCIT:s funds now must report a liquidity ladder on a quarterly basis to the national competent authority, a number of problems needed to be addressed. What assumptions are needed to assess the number of days it takes to sell a position? How do you handle non-frequent traded products? Are you allowed to assume partial sale of assets during the number of days until the position is closed?

In a joint pilot effort with the risk management team at Lannebo Fonder, Algorithmica has recently released a hybrid liquidity model. The model harvests market traded volume data where available and uses a multi-level expert scoring model where market information is missing. Market maker commitments and informal views can also be weighted in.

The new reporting format

When using an expert scoring model, the difficulties mainly lies in buy-in by market participants as to which parameters that have influence on the liquidity, and by how much. This hybrid model is flexible as it can use different scorers for different types of assets. It is also possible to have non-equal importance weighting on each scorer that is used. This paired with generous possibilities to override on individual positions that might lack proper classification data gives needed flexibility.

Getting the final result

For more information about Algorithmica Research’s Hybrid Liquidity Scoring Model, please contact Robert Thorén. +46 709 24 27 56.