The SEC economists’ analysis influenced the outcome of a rule that the agency proposed Sept. 22. Under the plan, which is out for public comment for 90 days, all mutual funds would have to keep a minimum share of their total assets in cash or cash- like investments that can be sold within three days.
The SEC rule requires funds to consider the frequency of investor withdrawals when setting their liquidity plans. For that reason, alternative funds will probably need a higher minimum cushion of easy-to-sell assets, according to the SEC.
“The study found that alternative strategy mutual funds had cash flows that were significantly more volatile than other strategies,” the SEC wrote in its rule proposal. “These funds may face higher levels of redemption risk.”