Asset managers are only just beginning to take action to replace LIBOR-linked benchmarks on their fund products after repeated warnings from regulators and market participants about the risk posed by continued exposure to the crisis-hit rate, which will cease to exist in 2021. The London Interbank Offered Rate (LIBOR) is currently the world's most widely-used reference rate, providing a benchmark for about $350trn worth of financial products, according to legal firm Ashurst....
The buy-side has been slow to switch from LIBOR-linked benchmarks on fund products, according to Investment Week, citing the Investment Association’s (IA) February survey that found 90% of participating managers use LIBOR as a benchmark for at least one fund. Of the IA's universe of funds,106 use a LIBOR-linked benchmark and just three – all Royal London products – use SONIA, according to FE data. Managers continue to launch LIBOR-linked funds, as recently as July, Pictet Asset Management launched its TR-Sirius fund with a LIBOR-linked hurdle rate. Church House Investment Management, which was reportedly making good progress selling all LIBOR-linked securities it invests in late last year, still uses LIBOR as the benchmark for its Tenax Absolute Return Strategies fund. In addition, some funds have begun using other measures such as the VIX index, or volatility index (VXIR), which is based on the price of stocks relative to their earnings yield.