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Russia-exposed investment funds with more than €4-billion in combined assets under management have been frozen in Europe, preventing investors from heading for the exits as they grapple with unprecedented Western sanctions imposed on Moscow after its invasion of Ukraine.
At least 22 asset managers – including J.P. Morgan Chase & Co., BlackRock Inc., BNP Paribas SA, Franklin Templeton Investments, Amundi Asset Management, UBS Group AG, Schroders PLC, Liontrust Asset Management PLC, Danske Bank A/S, East Capital and Pictet Group – have suspended funds since the invasion, meaning investors are now stuck with no indication of when they might be able to withdraw their money from these vehicles, according to data from Fitch Ratings Inc. and announcements from the asset managers.
More suspensions are expected, with assets held in Russia-focused mutual funds sold in Europe standing at €5.7-billion at the end of January, according to Refinitiv Lipper, the data provider.
“We believe further Russia-focused funds may suspend redemptions, driven initially by an inability to trade portfolio securities,” says Alastair Sewell, head of fund and asset manager ratings at Fitch Ratings. “We are monitoring [other] funds closely for signs of unexpected spillover effects.”
The fund suspensions highlight how Western allies’ measures to cut off Russia from global financial markets have had a knock-on effect for international fund managers, who hold at least US$150-billion in Russian assets collectively.
Investors’ ability to trade Russian assets both on foreign and domestic markets has deteriorated sharply in recent days, something that has complicated the situation for fund managers as they plot their next steps.
Russian stocks were already down about 40 per cent for the year to date by Friday’s close in U.S. dollar terms. The Moscow stock market was closed this week, but trading in Russian equities listed abroad suggests the market is set for heavy losses when it reopens. Russian bonds denominated in foreign currencies have also come under heavy selling pressure.
The asset-management arm of Denmark-based Danske Bank said on Monday: “Danske Invest has been forced to suspend trading in the equity funds that have a significant weight of Russian equities in the portfolio.”
Pictet Group says it would reopen its Russia equity fund “as soon as the market conditions allow.”
Meanwhile, London-based asset manager Liontrust said it was unable to predict when it might reopen its £181.7-million Russia fund.
“We will keep the suspension of the Russia Fund under continual review given it is such a rapidly changing situation and we will update investors as soon as we can,” the company says.
BlackRock, which has suspended redemptions from two investment funds and suspended creations in an exchange-traded fund, said in a statement that it was “actively consulting with regulators, index providers and other market participants to help ensure our clients can exit their positions in Russian securities, whenever and wherever regulatory and market conditions allow.”
Schroders suspended its emerging Europe fund in a sign that the impact is spreading beyond just Russia focused funds.
“We are closely monitoring the situation so that we can continue to act in the best interests of the fund and its shareholders,” Schroders said on Tuesday.
Broader emerging market (EM) funds with combined assets of €640-billon had an average exposure of 4 per cent to Russia, based on Lipper data.
Many EM fund managers were holding “overweight” positions in January because Russian shares were trading on extremely low valuations even before the Ukraine invasion.
At the same time, pension funds around the world are looking to offload, or are reviewing, their Russia investments. Retirement plans representing tens of millions of members in the public and private sectors typically have some exposure to Russia through EM funds, sovereign debt, or through stakes in funds and listed companies.
The Universities Superannuation Scheme (USS), the largest private-sector pension plan in the U.K., plans to divest assets worth £450-million exposed to Russia – representing about 0.5 per cent of its £90-billion portfolio. Its holdings included an £81-million stake in Sberbank PJSC, Russia’s largest bank, and £84-million in PJSC Lukoil Oil Co., the energy giant, as of Sept. 30, 2021.
“In terms of our own position, there is clearly a financial as well as a moral case for divestment with respect to our Russian holdings,” the USS said in a statement.
Caisse de dépôt et placement du Québec, one of Canada’s largest pension managers, says “disposal plans” were underway for its Russian holdings, which the $420-billion fund described as “marginal” in terms of value.
Australia’s sovereign wealth fund pledged on Monday to divest its remaining holdings of companies listed on the Russian stock exchange, which amounted to about 0.1 per cent, or A$200-million (US$110-million), of the total portfolio.
Meanwhile, the California Public Employees’ Retirement System, the U.S.’s biggest public pension plan with about US$480-billion of assets, has US$900-million exposure to Russia. It says it did not hold any Russian debt, but would not comment further. The California State Teachers’ Retirement System, which held Russian investments worth less than US$500-million as of Feb. 23, says it was reviewing its positions.
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