Management companies: the AMF offers advice for how best to implement and use stress tests

The AMF guide to implementing and using stress tests contains best practices, notably on executing:

• liquidity stress tests on each fund, simulating simultaneous problems on both the assets and liabilities side;
• liquidity stress tests across all funds managed by an asset management company, notably on markets of limited size;
• a stress test policy that sets alert thresholds and procedures for when an alert is triggered, as well as how to disseminate the stress test results within the asset management company;
• buyback scenarios that exploit all available information regarding liabilities and, ideally, a model of investor behaviour; and
• stress tests that correspond to the different stages in a fund’s life, from creation to liquidation, including ongoing risk management.

Above all, the scenarios must be adapted to the specific attributes of each fund and portfolio, and they must be updated regularly.