The world’s economy is already recovering from the damage inflicted by the lockdown measures imposed to contain the spread of COVID-19 in 2020.
Institutional investors may be relieved, but they should never lose sight of the most daunting challenge, which is to manage portfolios successfully in the face of high levels of systemic risk.
The May 2021 edition of the European Central Bank’s Financial Stability Review shows that risk in the financial system remains elevated, despite the economic recovery.
The ECB argues that the stress of March 2020 showed evidence of systemic risk stemming from the non-bank financial sector, which includes pension funds and other institutional investors. Money market funds and open-ended investment funds faced pressure, due to liquidity mismatches and over 200 Europe-domiciled investment funds suspended redemptions during the period.