This report presents stress-test simulations using fund holdings data from LSEG Lipper. Its model traces how an initial decline in asset prices prompts investor withdrawals, leads funds to sell assets, and generates further losses as those sales depress prices.
The study compares outcomes without LMTs with outcomes under a 2% redemption fee and a gate that caps redemptions at 5% of fund net asset value during a redemption window. It also examines different fee and gate settings when managers use both tools together. These settings are modeling assumptions, not recommended levels for every fund.
The simulations assess total fund losses, additional losses from forced selling, and cash paid to redeeming investors. Scenarios draw on asset-price volatility in late 2024 and during the 2022 United Kingdom liability-driven investment crisis, alongside more extreme hypothetical shocks.
