In a piece published in Investment Week, Church House Investment Management were cited as a fund manager that has made strong progress in reducing exposure to LIBOR-linked securities. Furthermore, Jeremy Wharton explained that we will be switching the Tenax Absolute Return Strategies Fund benchmark from LIBOR to SONIA before LIBOR is no longer available.

The London Interbank Offered Rate (LIBOR) is currently the world's most widely-used reference rate, providing a benchmark for investments valued in the trillions of dollars. But following its manipulation by bank traders, regulators have decided to phase it out by 2021. SONIA is administered by the Bank of England and is based on actual transaction. It reflects the average of the interest rates that banks pay to borrow sterling overnight from other financial institutions. 

Church House initially had exposure to LIBOR-linked securities maturing post 2021 of around 25%. With the inaugural issue of a SONIA-referenced FRN from the EIB coming to market in June 2018, we accelerated our reduction in exposure until we quickly had a de minimis post 2021 exposure and we now have none.

Jeremy Wharton explained, “Whilst some instruments have the correct language in their prospectuses to reference another money market rate the majority don’t. This leads to a consent solicitation exercise (where possible) that will probably be protracted and painful. We did not want to be exposed to this risk so I’m pleased that we acted quickly to neutralise this risk and as we were early in the process we achieved the best possible disposal prices for post 2021 LIBOR referenced assets.”