Search for Yield Leads to More Risks in Credit Funds

Search for Yield Leads to More Risks in Credit Funds
Link to Fitch Ratings’ Report: Credit Funds Dashboard April 2015
Fitch Ratings warns of the temptation that fixed income fund managers may have in current market conditions to overreach for yield, potentially loosening credit selectivity and leading to excessive credit and liquidity risk-taking.
Fund managers may be tempted to look for opportunities in lower-rated, less liquid, off-benchmark or longer-maturity bonds. This can lead to excessive risk-taking – there is a growing consensus among asset managers that the risks are beginning to outweigh the rewards, due to an overall increase in liquidity, re-pricing and idiosyncratic risk.
The inability to maintain discipline in credit selection and liquidity risk management, or the inability to de-risk the portfolio in a timely manner may put pressure on some fixed income Fund Quality Ratings. Furthermore, a potential change in market regime or market re-pricing (exacerbated by poor liquidity) may lead to more differentiation between funds’ performance, which in turn could lead to select rating actions.


The Association of International Wealth Management of India (AIWMI) is a not-for-profit organization and a globally recognized membership association for finance professionals. AIWMI primarily focuses on the broad and strategic role of developing a more robust and forward-looking training infrastructure for the financial services sector and to promote more active industry involvement and collaboration in training and continuing education. AIWMI is offering advanced international certification programs along with a wide variety of high-quality executive education programs. AIWMI programs combine state-of-the-art knowledge and skills with practical experience and insights into the functioning of the financial sector. All AIWMI courses and educational events have an intense and pragmatic curriculum. Participants are exposed to the latest developments within the financial services sector. AIWMI plays a key role in guiding the development of the financial services sector. AIWMI works with key industry participants’ viz. the Government, the Regulators, the Industries/Associations, the Corporate, the Media and the General Public to achieve its objectives. Besides enhancing technical competence and professionalism in the industry, AIWMI organizes events and facilitates discussions to promote best practices in leadership and talent development in the financial sector with an aim to become Asia’s premier center of excellence for financial education.

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