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Recognising that liquidity is a key concern to pension fund managers, especially under uncertain market conditions, AGF International, based in Dublin, is offering Liquidity Watch, a specialist evaluation product.
This specialist service offers a customised quarterly liquidity analysis of a pension fund, evaluating each holding in the fund for its marketability and tradeability.
The client pension fund submits to AGF Liquidity Watch information about its holdings that is generally found in every evaluation: a list of the shares held, the number of shares of each holding, the price at valuation date, and the SEDOL code. With this information, Liquidity Watch prepares a detailed study of the fund, investigating each holding individually.
By subcontracting this analysis to an external specialist, the fund manager ensures impartial and expert evaluation, according to John Arnold, managing director of AGF Liquidity Watch. “You get an independent viewpoint,” said Arnold. “If you do it internally you may not be totally honest in your evaluation,” because of office politics.
In addition, the staff at Liquidity Watch are all specialists in doing this type of research. “There is 10% at the bottom of most funds that is not straightforward – when you find problems, you need to undertake a lot of investigative work and it gets pretty intense,” Arnold says.
He adds: “Our people are used to doing it, and we have the contacts and the procedures. You don't have to reinvent the wheel.”
The service is provided quarterly for an annual fee of £5,000, and interim analyses are available for an additional fee. Arnold believes that a quarterly analysis is regular enough to measure changes in style and to provide early enough indications of any troublesome holdings in a portfolio. For the parent company’s funds, however, the evaluation is conducted on a monthly basis.
AGF is marketing Liquidity Watch as a compliance product, considering it an addition to a pension fund's in-house range of benchmarks and risk analysis procedures. However, it may also be used to enhance investment performance: for example, if a fund's existing holdings are reasonably liquid, funds that would otherwise be invested in strategic cash vehicles might be able to be more effectively deployed as higher-yield equity investments.
The service has been on offer for two years now, according to Mabel Ellis, marketing manager, and has attracted seven clients, ranging in size from small pension funds to those with billion-dollar holdings. The focus is on funds based in the UK. Stephanie Schwarz

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