The use of the mechanism known as ‘Swing pricing’, which serves to alleviate reimbursements and soften the effects of volatility on the price of investment funds, grows among Spanish managers. International managers have used it for a long time and, in Spain, it was Bestinver who imported it recently, in full stress of the market for the coronavirus. The Acciona manager has been followed by other firms, both banks and boutiques.
One of them has been Liberbank Gestión, for almost a dozen of fixed income, mixed and variable income funds. Its board of directors has decided to apply valuation procedures that take into account the situation of subscriptions or net redemptions of funds, specifically, the use of purchase or sale prices for the valuation of positions held in portfolio, and exceptionally, the carrying out of adjustments in the net asset value through the 'swing pricing' mechanism. These funds include Liberbank Capital Financiero, Liberbank Renta Variable España or Liberbank Renta Fija Flexible.
The purpose of this adjustment mechanism is to provide protection to long-term participants in a fund against large subscription or redemption activities by other investors in the same fund, which normally they are the big investors, transferring to them the negotiation costs derived from said entry or exit, which can be high during a volatile market situation or when there is reduced market liquidity, such as Covid-19.
Bestinver has installed this practice in those funds where there is a bond presence, that is, in fixed income and mixed funds, such as the Bestinver Short Term, the Bestinver Patrimonio or the Bestinver Institutional Bonds. Outside of Spain, managers like Schroders, Groupama, Edmond de Rothschild, Degroof Petercam or Lazard are common in this type of practice.
HOW DOES SWING PRICING WORK?
The effective application of this mechanism assumes that, if the daily net amount of subscriptions or redemptions of a fund exceeds the threshold established in the entity's internal procedures, expressed as a percentage of the fund's assets, the mechanism will be activated by adjusting the net asset value. up or down by a certain factor also in the internal procedures, to take into account the adjustment costs attributable to the net subscription and redemption orders. "All these valuation adjustments that are made will not have any impact on the investments of those participants that do not carry out operations on the dates on which they are made," explains the manager of Liberbank. Ultimately, these types of mechanisms go aimed at protecting the small investor of the collateral damage that the movements of the greats have.
But not only bank managers are beginning to adopt 'swing pricing'. Independent boutiques are even one step ahead in this crisis. For example, the Basque Acacia Inversión, directed by Miguel Roqueiro. In your case, the decision affects six bond, equity or mixed funds, among which are Acacia Reinverplus Europe, Acacia Renta Dinámica or Acacia Bonomix. As this manager remembers, even if these mechanisms are adopted, they do not have no impact on investment strategy or fund costs.