April 18, 2019 - Recently, questions have been raised about the liquidity of loan investments and whether loan mutual funds are an appropriate investment vehicle for loans. In fact, that question was answered late last year. In fourth quarter 2018, loan mutual funds and ETFs underwent a “natural experiment” as loan prices declined five points and funds experienced nearly $20 billion of redemptions in short order. Loan mutual funds successfully navigated that turbulent market, selling assets and managing their liquidity and redemption needs. Importantly, last year’s experience reaffirmed the efficacy of funds’ Liquidity Risk Management plans and their “Highly Liquid Investment Minimums”, or the amount of highly liquid investments they must keep on hand. Both of these safeguards have been developed in conjunction with the SEC’s 2016 Liquidity Risk Management Rule.