Irish funds exposed to Russia suspended as global managers freeze billions

Trading in a number of Irish funds highly exposed to Russian stocks and bonds have been suspended in recent days, amid concerns they would be overwhelmed by investors looking to withdraw money as the world’s 12th-largest economy grapples with unprecedented western sanctions.

They account for at least €1 billon of the billions of euros of assets in Russia-focused funds that have been frozen by investment managers globally this week as the value of underlying assets plunged.

Irish-domiciled Barings Eastern Europe Fund, which had about €600 million of assets as of the end of January and counted Russia's biggest lender Sberbank, energy giant Gazprom and oil producer Lukoil among its top holdings, was suspended on Tuesday.

It is believed more than half of this fund was invested in Russian companies before the country invaded its western neighbour sparking the biggest geopolitical crisis in Europe since the second World War.

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The fund's managers blamed the "exceptional and adverse market conditions relating to the current situation in Russia and Ukraine" as it informed investors that their right to trade units of the fund had been temporarily suspended. They were unable to say how long this would last.

Blackrock, the world's largest asset managers, moved this week to suspend an Irish-based exchange-traded fund (ETF) that managed its iShares unit – known as the iShares MSCI Russia ADR/GDR Ucits ETF. This had about €220 million of assets as of January, mostly in Russian companies, led by Gazprom and Lukoil.

The iShares Eastern Europe Capped Ucits ETF, understood to be the third-most exposed Irish fund to the crisis, has also been suspended, with Russian assets making up almost half of its €135 million portfolio before president Vladimir Putin declared war on Ukraine.

Stock market

The job of the managers of funds heavily invested in Russia has been made much harder as the Moscow stock market has remained closed all week and trading in major Russian stocks has been banned across a number of other international exchanges.

Blackrock, with more than $10 trillion (€9.14tn) of assets under management, announced on Thursday that it had gone one step further by halting the purchase of all Russian stocks, bonds and other securities by its funds. Russian securities account for less than 0.01 per cent of its clients’ assets.

The market turmoil has also led to the suspension of some smaller funds in Dublin. These include the Invesco RDX Units ETF, with €6.8 million of assets before the crisis, the FinEx Tradable Russian Corporate Bond Ucits, and, according to funds research firm Morningstar, the €20 million Metzler Eastern European fund.

Irish funds had almost €13 billion of Russian assets as of the end of last September, although this had fallen to €11.4 billion by December. However, most of these are housed in big international funds, making up less than 0.3 per cent of all €4 trillion of international assets held in Irish-domiciled funds.

Regulator

A spokeswoman for the Irish Central Bank said that it, as the regulator of Europe's second-largest funds hub, after Luxembourg, could not comment on individual cases of fund suspensions.

“However, by way of general comment, effective liquidity management is important for the protection of investors, maintaining market integrity, and reducing systemic risk; all of which supports financial stability,” she said. “Fund management companies have obligations in this regard, including having and effectively deploying an appropriate suite of liquidity management tools.”

These may include suspensions, “to ensure the appropriate management of fund liquidity taking into account prevailing market conditions”, she said.