US investment group halts withdrawals in move that could rock asset management industry
Franklin Templeton said it would freeze a number of its fixed income mutual funds in India after the coronavirus pandemic wrought havoc on the country’s bond markets, trapping over $3bn of investor money and prompting fears of turmoil in the asset management industry.
The Indian arm of the US fund group, which manages about $580bn globally, announced that it would halt withdrawals on, and wind up, six so-called credit-risk funds, which invest in lower rated bonds offering high interest rates.
That decision, which affects its Indian clients, was made after investors increased redemptions due to alarm at the spread of Covid-19. The country has been largely shut down for almost five weeks as part of efforts to combat the virus’s spread.
“This economic disruption and slowdown has created panic among investors,” said Suman Chowdhury, president of Acuite Ratings. “This is a vicious circle . . . It can spill over to a larger number of mutual funds.”
The flurry of investor withdrawals has sapped funds from India’s already illiquid credit markets, piling pressure on the country’s fragile financial system. Analysts said it could take months or years for investors in the gated funds, which had Rs259bn ($3.4bn) in assets under management as of this week, to get their money back.
Winding up the schemes “is the only viable option to preserve value for unit holders and to enable an orderly and equitable exit for all investors in these unprecedented circumstances,”