From an investor’s perspective, asset managers will have to change their exposure of affected investments into new rates or update the fallback language.
They will need to offer reassurance that this transition from Libor to other reference rates is being executed in an orderly and thorough way. They will also need to carefully explain to investors how any new benchmarks differ from those they currently use.
Given the complexity underlining this transition, it will be more important than ever that financial institutions, including fund managers, use language that can be easily understood by advisers and their clients.
The asset management industry as a whole must also work together to avoid misleading performance reporting as a result of any changes to benchmarks.
In short, the end of Libor will necessitate a wholesale recalibration of a wide range of reference points and will have repercussions across the financial services industry.
This is no simple process, and the asset management industry faces a critical few months as it transitions away from this widely applied benchmark.
It is equally important that advisers remain fully informed on any impact this shift has on their understanding of the expected performance of the funds they recommend to their clients.
Eduardo Sánchez, Senior Investment Research Analyst, Square Mile Investment Consulting and Research
