ACA Liquidity Rule Survey Highlights Board Reporting Trends

ACA Compliance recently released its 2020 Liquidity Risk Management Program survey, the first to capture full liquidity program rule compliance for the industry since the rule’s adoption. The survey covers the waterfront on industry compliance with the rule, including board reporting. The Forum will host a webinar with ACA Compliance in December to discuss the survey in detail. With respect to board reporting, the survey found that  most fund boards receive information on the liquidity program on a quarterly basis, with 92% of fund complexes indicating this frequency, followed by 8% who say they receive only annual reporting. ACA reported that at least one fund group reported that their fund complex held monthly calls with the board providing summary reporting for most funds and detailed reports for bank loan funds. ACA also reported that the format of reports provided to boards ranged from memorandums to dashboards, and included information such as: liquidity classifications by individual holdings; liquidity classifications by buckets; liquidity classifications with emphasis on highly liquid and illiquid buckets, and trend analysis; vendor status; material redemption activity, and back-testing results, among other categories.  Some other highlights from the ACA Compliance survey:

  • Program Administrator: Eighty-eight percent (88%) of fund complexes indicated that the investment adviser, through a committee structure, was designated as liquidity program administrator. A minority of smaller fund groups indicated that fund officer(s) would be designated as the liquidity program administrator.
  • Pandemic Concerns: During the COVID Period, seventy-one percent (71%) of fund complexes did not change the established frequency of liquidity classification assessments. For the remaining twenty-nine percent (29%), more than half (57%) moved to either a daily classification calculation, adjustment or review process, while others moved to a weekly assessment, or generated intra-month classifications to monitor for any significant changes. A majority (85%) of advisers similarly did not change the established frequency of liquidity classification assessments.
  • Technology solutions: Just over a quarter (26%) of advisers, up from 22% and 18% the past two years, have built an in-house technology solution to classify liquidity. The results also show the steady climb in use of third-party liquidity vendors similar to the fund administrator’s vendor across half (50%) of advisers, continuing the steady upward trend since 2018.