HANDLE A WAVE OF REDEMPTIONS
WHO CAN BENEFIT
Any fund concerned about daily liquidity demands, especially those in less liquid or higher-transaction-cost asset classes.
PROBLEM
When a wave of redemptions forces funds to liquidate securities for cash, performance suffers on several counts:
- Liquidations distort and distract from long-term investment strategies.
- The costs of flow-induced trades drive up expenses and diminish returns for all shareholders.
- Managers may be forced to trade in adverse markets, driving up market impact and other indirect costs.
- Flow-induced transactions often result in taxable capital gains.
Monthly net flow data mask the true impact of daily in/outflow due to shareholder activity, which may account for as many as one out of three trades, studies have found
SOLUTION
ReFlow’s Redemption Service enables funds to access liquidity as needed to meet redemptions.
- ReFlow provides cash in exchange for a position in the fund, paying expenses and incurring market risk like any other shareholder.
- Funds then redeem ReFlow’s shares within 28 days as new inflows are received.
- As an option, funds may choose to redeem ReFlow’s shares with securities of equivalent value. This “in-kind” redemption option allows funds to further lower taxable distributions by redeeming ReFlow’s position with the low-cost-basis lots of securities on their “sell” lists. In this case, ReFlow’s position is redeemed within 14 days of the original transaction.
Redemption Service is an everyday solution that can be turned on and off at will; it can also be set up to trigger automatically when a client-determined net outflow threshold is reached.
BENEFITS
- Preserves integrity of the fund’s investment strategy.
- Improves performance and lowers capital gains distributions by eliminating flow-generated transactions.
- Provides opportunity to further reduce capital gains distributions through use of the in-kind redemption option.
- Meets short-term liquidity needs without affecting NAV.
- Prevents costly overdrafts.
- Provides more cost-effective, immediate access to liquidity than the alternatives (e.g., lines of credit).
