March 16, 2020 / 4:31 PM / 11 days ago

UPDATE 2-Further fund lock-ups expected after freeze by Denmark's Jyske

(Recasts, adds market comments, flows data, background)

By Carolyn Cohn and Nikolaj Skydsgaard

LONDON/COPENHAGEN, March 16 (Reuters) - The global shock to markets from coronavirus is expected to cause more funds to suspend trading, industry sources said on Monday after Denmark’s Jyske Invest froze a number of its funds.

In one of the first signs of stress in the sector, Jyske on Monday briefly suspended a dozen of its funds, mostly invested in equities, and said a further five invested in bonds, which it suspended last week, remained frozen after markets tumbled.

Analysts said more open-ended funds, which sometimes invest in hard-to-trade assets but allow investors to take their cash out daily, were likely to freeze because fund managers will be unable to sell assets quickly enough to meet redemptions.

Many funds suspended trading during the 2008 global financial crisis.

A 3.7 billion pound ($4.55 billion) fund managed by British veteran investor Neil Woodford froze last year before collapsing four months later. A 2.5 billion pound UK property fund managed by British asset manager M&G remains frozen after being suspended in Dec 2019. Both invested in illiquid assets.

“On the assumption that pricing volatility and market stress persists... that inevitably increases pressure on open-ended mutual funds, which offer daily redemptions to their investors,” said Alastair Sewell, head of fund & asset manager group for EMEA and APAC at Fitch Ratings.

Bankers say high-yield bond funds are particularly vulnerable to lock-ups, as the possibility of more corporate defaults knocks bond prices, with a global recession looming.

High-yield funds contain debt typically rated as “junk”.

Investors yanked 900 million pounds from UK-based bond funds in the first 12 days of this month, fund network Calastone said.

Finn Beck, a senior director at Jyske, said volatility had made it harder to get intra-day asset prices, a particular problem for Danish funds, which price throughout the day, unlike in other countries which typically only price at the close.

The Jyske funds briefly frozen on Monday were chiefly invested in shares traded across a range of markets, including China, Europe, India and the United States.

Jyske manages around 70 funds in total, with assets of 100 billion Danish crowns ($15 billion) as of March 1.

Beck declined to give a figure for the assets under management of any of the funds which were frozen.

Fitch said the bond fund assets frozen last week totalled around 150 million euros ($167 million) at the end of February. ($1 = 6.7235 Danish crowns) ($1 = 0.8974 euros) (Additional reporting by Simon Jessop and Abhinav Ramnarayan in London; Editing by Maiya Keidan, Mark Potter, Jan Harvey and Alexander Smith)

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