Liquidity Stress Testing for Maltese Retail Investment Funds: 2021 Update
DECEMBER 10, 2021

The main purpose of this report is to provide an update, at a micro level, of the liquidity stress testing of investment funds carried out for the first time by the Authority in 2020. While most of the methodology remains unchanged, some modifications are applied to overcome certain shortcomings that emerged in the previous framework. Overall, we find that the liquidity risk in the Maltese retail investment fund industry remains contained, with most of the funds capable of withstanding extreme redemption requests. Moreover, the Covid-19 pandemic provided a perfect opportunity to test the validity of the model calibrated in 2020. We find that the extreme redemptions calibrated in the previous stress testing exercise provided a reliable estimate of the redemption magnitudes which a fund manager could expect during turbulent years such as 2020.