Russia-focused funds with more than 4 billion euros in assets freeze redemptions

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Funds exposed to Russia with more than 4 billion euros in combined assets have been frozen in Europe, preventing investors from heading for exits as they grapple with unprecedented Western sanctions imposed on Moscow after his invasion of Ukraine.

At least 19 asset managers, including JPMorgan, BlackRock, BNP Paribas, UBS, Liontrust, Danske Bank, East Capital and Pictet, have suspended their funds since the invasion, meaning investors are unsure when they might withdraw their money from these vehicles, according to Fitch data and manager announcements.

More suspensions are expected, with assets held in Russia-focused mutual funds sold in Europe amounting to 5.7 billion euros at the end of January, according to Lipper, the data provider.

“We believe other Russia-focused funds may suspend redemptions, initially driven by an inability to trade portfolio securities,” said Alastair Sewell, head of fund and asset manager ratings at Fitch.

“We are monitoring [other] funds closely to detect signs of unexpected ripple effects,” he added.

The fund suspensions show how moves by Western allies to cut Russia off from global financial markets have had a ripple effect on international fund managers, who collectively hold at least $150 billion in Russian assets. Investors’ ability to trade Russian assets in both foreign and domestic markets has deteriorated sharply in recent days, complicating the situation for fund managers as they prepare their next steps.

Russian stocks were already down about 40% for the year to date at Friday’s close in US dollars. The Moscow stock exchange was closed on Monday and Tuesday this week, but trading in overseas-listed Russian stocks suggests the market is set to suffer heavy losses when it reopens. Russian bonds denominated in foreign currencies also came under heavy selling pressure.

The asset management arm of Danish institution Danske Bank said on Monday: “Danske Invest has been forced to suspend trading in equity funds that have a significant weight of Russian stocks in the portfolio.” Pictet announced that it would reopen its Russian equity fund “as soon as market conditions allow”.

Meanwhile, London-based asset manager Liontrust said it was unable to predict when it might reopen its £181.7m Russia fund. “We will keep the suspension of the Russian Fund under continuous review given that the situation is evolving so quickly and will update investors as soon as possible,” the company said.

BlackRock, which suspended redemptions from two investment funds and suspended creations in a listed index fund, said in a statement that it was “actively consulting with regulators, index providers and other market participants to help ensure that our clients can exit their positions in Russian securities, when and where regulatory and market conditions permit.

Broader emerging markets funds with combined assets of 640 billion euros had an average exposure of 4% to Russia, according to Lipper data. Many emerging market fund managers held “overweight” positions in January, as Russian stocks were trading at extremely low valuations even before the invasion of Ukraine.

“A financial and moral argument for divestment”

At the same time, pension funds around the world are looking to offload or review their investments in Russia. Pension plans representing tens of millions of members in both the public and private sectors typically have exposure to Russia through emerging funds, sovereign debt or holdings in funds and listed companies.

The Universities Superannuation Scheme, the largest private sector pension scheme in the UK, plans to divest assets worth £450m exposed to Russia, representing around 0.5% of its portfolio of £90 billion. His holdings included an £81million stake in Sberbank, Russia’s biggest bank, and £84million in energy giant Lukoil, at the end of September 2021.

“With regard to our own position, there are clearly financial and moral arguments for a divestment with respect to our Russian holdings,” USS said in a statement.

The Caisse de depot et placement du Quebec, one of Canada’s largest pension managers, said “divestment plans” were underway for its Russian holdings that the C$420 billion (330 billions of dollars) described as “marginal” in terms of value.

Australia’s sovereign wealth fund pledged on Monday to divest its remaining holdings in companies listed on the Russian stock exchange, which accounted for about 0.1%, or 200 million Australian dollars ($110 million), of the total portfolio.

Meanwhile, Calpers, the largest public pension plan in the United States with about $480 billion in assets, has $900 million in exposure to Russia. He said he did not hold any Russian debt, but would not comment further. The California state teachers’ pension system, which held Russian investments worth less than $500 million as of February 23, said it was reviewing its positions.

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