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Central banks inject almost $100 billion to help funds

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Monetary authorities including the US Federal Reserve and the Reserve Bank of India stepped in to relieve stress on their fund markets

Central banks have injected almost $100bn (€90.8bn, £79.8bn) to prop up investment funds affected by the coronavirus-led market turmoil.

Monetary authorities including the US Federal Reserve and the Reserve Bank of India stepped in to relieve stress on their fund markets after the ongoing health crisis has caused heavy fund outflows and sharp falls in asset prices.

Central banks have provided support amounting to $93.8bn to funds since the emergency began, according to rating agency Fitch. The figure will provide fresh ammunition to policymakers concerned that the fund industry could be the centre of the next financial crisis.

The most aggressive central bank contribution came from the Fed’s backstop aimed at helping US money market funds meet redemption requests. The programme has delivered a $51bn liquidity injection to the country’s $3.8trn money market fund sector.

In March, the US central bank appointed BlackRock to manage two Fed-backed special-purpose vehicles to buy primary and secondary market corporate bonds.

One of the vehicles has bought investment-grade exchange traded funds, marking the first time the Fed has included ETFs in this type of purchasing programme.

Mutual fund support facilities provided by monetary authorities in Thailand, India and Colombia respectively total $31.2bn, $6.6bn and $5bn, according to Fitch.

In late April, the Indian arm of US fund manager Franklin Templeton suspended six local bond funds managing more than $3bn after jittery investors pulled their cash.

Investment management has grown significantly since the last crisis, now controlling assets of about $55trn, compared with $24trn in 2008, according to the Investment Company Institute, the US trade body.

Fitch estimates the industry’s asset pool is now equal to 64 per cent of global GDP, compared to 38 per cent in 2008.

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