The technology of the tool, LiquidityMetrics from MSCI, will allow the firm to stress test the liquidity of its funds, measure the potential impact of various market scenarios and evaluate potential transaction costs, liquidation time horizons, amounts available for liquidation, and other critical information.
In the wake of the financial crisis, the need for mutual funds to hold sufficient cash on hand in case of high redemptions became a priority.
Requirements for stress testing for fund companies, and the potential for some of them to have been classed as systemically important financial institutions (SIFIs), were under consideration by the SEC and other agencies.
Among agency concerns were whether mutual fund companies should be more highly regulated, particularly those that use leverage and derivatives to increase returns.
The LiquidityMetrics platform was introduced in 2013, when increasing regulatory controls were reducing the number of fixed-income market makers, leaving corporate bonds and other securities more vulnerable to liquidity shocks.
“The 2008 financial crisis and subsequent regulatory changes put a premium on identifying liquidity-related risks before they become a problem,” Andrew G. Arnott, president and CEO of John Hancock Investments, said in a statement. “However, until recently the technology available in our industry for analyzing those risks was imperfect and often limited to equities.”
Arnott added, “By adopting MSCI’s platform, our goal is to be best in class in terms of liquidity risk management and monitoring, with an even deeper understanding of the liquidity profile of our funds. We’re pleased to be an early adopter of this technology in the asset management industry. We think it’s the right thing to do for our shareholders.”