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Eastspring liquidates Thai funds amid massive outflows

Four of TMBAM Eastspring's fixed-income funds have been terminated due to a flood of redemptions, eliciting comments from Thailand’s deputy PM.
Bernard Teo, executive chairman, TMBAM Eastspring

The global spread of Covid-19 has created panic selling as many investors jump into cash, resulting in “an unprecedented level of redemptions”, an Eastspring spokeswoman said.

As a result of those redemptions, in liquidation are the firm’s TMB Ultra-Short Bond Fund, TMB Aggregate Bond Fund, TMB Bond Fund and the TMB Thana Plus.

The four funds are in the process of selling the holdings in order to return capital to investors, according to Chayanee Juengmanon, senior research analyst at Morningstar in Bangkok.

Thailand’s regulator provides guidelines for possible redemption issues, including gating, she added.

“For the TMB funds case, TMBABF and TMBUSB were initially announced to gate but then announced they would close shortly after that,” Chayanee said.

Huge outflows

The closure of the Aggregate Bond Fund and Ultra-Short Bond Fund was on 26 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 the Eastspring spokeswoman.

A day later, on 27 March, the firm closed the Thana Plus Fund and the TMB Bond Fund. In the ten days before closure, each of these two funds had massive outflows of roughly 67% of AUM, the firm said.

All four funds were said to be “low-to-moderate” risk according to their factsheets.

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.

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.

“[M]ore 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 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.

The firm said that the fund closures have no impact on other TMBAM Eastspring funds.

The TMBAM Eastspring brand was created after the acquisition of 65% of Bangkok-based TMB Asset Management from TMB Bank in September 2018.

The firm was the fourth largest fund manager in Thailand, with THB 459bn in assets, according to February data from Morningstar Direct.


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.

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