Eastspring has decided to liquidate four fixed income funds in Asia holding equivalent to £6.1bn before coronavirus redemptions caused assets to shrink by up to 70%.
The low-to-moderate risk funds were targeted at Thai investors seeking foreign fixed income exposure. The liquidation has elicited comments from Thailand’s deputy prime minister about panic selling.
The funds had been connected to Eastspring’s acquisition of 65% of Bangkok-based TMB Asset Management from TMB Bank in September 2018. In liquidation are the Eastspring TMB Ultra-Short Bond Fund, TMB Aggregate Bond Fund, TMB Bond Fund and the TMB Thana Plus.
Affected funds lost up to 71% of AUM
The Aggregate Bond Fund and Ultra-Short Bond Fund closed on 26 March after investors pulled 78,521m THB (£1.9bn) between 1 and 24 March. Both funds are invested in investment grade foreign debt.
“This action was necessary due to the significant market volatility that has resulted in unprecedented spreads and unusually high outflows equivalent to 49% and 71%, respectively, of the AUM as of 16 March 2020,” according to a Eastspring spokeswoman.
A day later, on 27 March, the firm closed the Thana Plus Fund and the TMB Bond Fund. In the 10 days before closure, each of these funds had massive outflows of roughly 67% of AUM, the firm said.
Flows of TMB Eastspring funds in liquidation
| Fund name | Fund code | Estimated net flow (THB million) | Net asset (THB million) | ||
| 1-24 March | February | Dec-19 | 24-Mar-20 | ||
| TMB Aggregate Bond | TMBABF | -28,645 | 3,023 | 64,421 | 29,332 |
| TMB Ultra – Short Bond | TMBUSB | -49,876 | -667 | 79,529 | 39,664 |
| Fund name | Fund code | Estimated net flow (THB million) | Net asset (THB million) | ||
| 1-25 March | February | Dec-19 | 25-Mar-20 | ||
| TMB Bond | TMBBF | -3,975 | -129 | 14,424 | 10,681 |
| TMB Thana Plus | TMBTHANAPLUS | -9,905 | -4,007 | 88,900 | 78,433 |
Source: Morningstar Direct, data as of 25 March 2020.
Thai deputy prime minister describes panic selling
Thailand’s Deputy Prime Minister Somkid Jatusripitak felt it was necessary to comment on the fund closures. In a Bangkok Post report, he attributed the redemptions to “panic selling” as a result of the Covid-19 pandemic as clients moved into cash, and said the selling wasn’t linked to bad assets.
The Bank of Thailand governor also spoke publicly on the funds, attributing the outflows to tight liquidity in the global fixed income market. Investors panicked, “and the funds were forced to sell off their bond holdings despite the fact that the quality of the bonds is promising”.
He added that there were no signs of unusual sales by unit holders of other mutual funds for sale in Thailand.
Thailand’s Securities and Exchange Commission secretary-general suggested that Thai investors perceived local bonds as more secure.
“More than half of TMBAM Eastspring’s fixed-income fund portfolios had been allocated to overseas bonds with investment grade, while other mutual fund operators have focused on local bonds with a credit rating of A or above”, she said, according to the report.
Eastspring reassures on underlying assets
Eastspring said that no assets are in default, “but amidst the current climate, credit spreads have been uncharacteristically high and as a result, investors have reviewed allocations to various debt instruments.
“In addition, there is little demand for certain securities in the market and in places, there has been a lack of liquidity.”
The firm put the sell-off in a global context and said that over the last four weeks, emerging market bond outflows were huge, “equivalent to 10% of global AUM” for the asset class”.
All four funds were said to be “low-to-moderate” risk according to their factsheets.
The firm said that the fund closures have no impact on other TMBAM Eastspring funds.
Eastspring has about 60-odd funds distributed in Thailand and roughly 15 are feeder funds that invest into products from various managers such as Pimco, Wellington, Lazard and Goldman Sachs Asset Management.
Eastspring had $241bn (£195.2bn) assets under management at the end of 2019.
