Here’s an extended excerpt from the March 4 print edition of The Wall Street Journal. Article by Justin Baer
Russia’s invasion of Ukraine has created a conundrum for U.S. investment firms, pressuring them to unload Russian securities when the country’s stock market is closed and foreigners are blocked from selling shares there. In response to sanctions and other steps the U.S. and other countries have taken to punish Russia, the Moscow exchange suspended stock trading every day this week through Thursday. Russia on Monday banned brokers from selling securities owned by foreign investors.
Some U.S. money managers with Russian securities held in funds that focus on emerging markets are worried that their investors will pull money over concern about their Russian exposure. If they can’t sell Russian shares to meet the demand, funds could be forced to deplete cash on hand or sell other assets. That could deliver a double whammy for emerging-market managers: a reduction in the share of their funds in liquid assets that coincides with an increase in the weightings of their Russian holdings.
Some firms are thinking about asking the Securities and Exchange Commission for relief from a cap on the proportion of illiquid securities that funds can hold—currently 15%—and from rules governing redemptions, people familiar with the matter said. An SEC spokesman declined to comment. BlackRock Inc. is one of several money managers that have had informal discussions with SEC officials on the challenges they face and ways in which the pressure could be alleviated …
U.S. mutual funds and exchange-traded funds owned more than $71 billion in Russian equities and bonds at the end of January, according to Morningstar Direct estimates. Clients of some mutual funds that hold Russian stocks and bonds pulled more money than they added last month. Net outflows from Invesco Ltd.’s Developing Markets Fund, whose Russian stocks accounted for 7.9% of assets at year-end, totaled about $348 million in February, according to a preliminary estimate compiled by Morningstar Direct. Harding Loevner’s Institutional Emerging Markets Portfolio fund, with more than 8% invested in Russia at the start of February, had outflows of $221.6 million, Morningstar Direct said.