REDEMPTION CONSTRAINTS OF BRAZILIAN EQUITY FUNDS, LIQUIDITY OF ASSETS, AND PERFORMANCE

Borges, Dermeval Martins; Malaquias, Rodrigo Fernandes

doi:10.1590/S0034-759020190105

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ARTICLES • Rev. adm. empres. 59 (1) • Jan-Feb 2019 • https://doi.org/10.1590/S0034-759020190105 copy

REDEMPTION CONSTRAINTS OF BRAZILIAN EQUITY FUNDS, LIQUIDITY OF ASSETS, AND PERFORMANCE

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

This paper analyzed the relation between redemption constraints and liquidity of assets under management of Brazilian equity funds, as well as its effect on performance. The sample included 2,706 Brazilian equity funds with investments in stocks listed on BM&FBovespa, or in shares of other equity funds, between 2009 and 2016. The analysis was carried out through descriptive statistics and linear regressions with panel data. The results indicated that redemption constraints positively impact equity funds performance. In addition, the results suggested that liquidity constraints allow the funds to exploit less liquid investments in stocks and shares of other funds. When verifying whether investments in low liquidity assets by equity funds imply superior performance from liquidity premia, the results did not indicate a positive effect.

KEYWORDS
Redemption constraints; portfolio liquidity; performance; equity funds; investment funds

Variable	Sign	Description
sharpe	..	Sharpe ratio by year (frequency of returns: monthly).
sharpepos	..	Sharpe ratio by year (frequency of returns: monthly), only returns from funds with a positive risk premium.
sortino	..	Sortino ratio by year (frequency of returns: monthly).
alpha	..	Jensen's alpha by year (frequency of returns: monthly).
nllockup	+	natural logarithm of (lockup in days + 1).
nlminbal	+	natural logarithm of minimum balance.
exitrate	+	dummy variable with value 1 for funds that charge an exit rate and 0 in others.
liqconst	+	dummy variable with value 1 for funds with lockup greater than or equal to 30 days or minimum balance greater than or equal to R$ 10 thousand or dummy variable that charge exit rate and have value 0 in the other funds.
iliqcart	+	dummy variable with value 1 for funds in which most of the portfolio is invested in low liquidity assets and have value 0 in others.
constiliqcart*	+	product of the multiplication of the variables liqconst and iliqcart (liqconst x iliqcart).
nlnw	+	natural logarithm of total net assets.
age	-	number of years since the registration of the fund in the CVM.
ifp2	+/-	dummy with value 1 if the fund has a quantity equal or superior to 40% of its portfolio invested for other funds, and value 0 for other cases.
manrate	-	the maximum management rate charged by the fund on an annual basis.
perrate	+	dummy variable that receives value 1 if the fund charges performance rate and value 0 for other cases.
difs	..	difference between the percentage of the portfolio allocated in thinly traded stocks and actively traded stocks.
diff	..	difference between the percentage of the portfolio allocated in low liquidity and high liquidity funds.
difa	..	difference between the percentage of the portfolio allocated in low liquidity and high liquidity assets.

Variables	Observations	Average	Standard Deviation	Min	Max
alpha	10,616	1.472	15.477	-41.940	59.673
sharpe	10,616	-0.085	1.524	-2.593	4.700
sharpepos	4,030	1.459	1.292	0.000	4.700
sortino	10,616	1.246	5.883	-2.228	38.076
nllockup	12,422	1.992	0.923	0.000	7.510
nlminbal	10,874	6.223	4.660	0.000	16.118
exitrate	7,154	0.208	0.406	0.000	1.000
liqconst	12,447	0.411	0.492	0.000	1.000
nlnw	11,857	17.021	1.716	5.534	24.405
age	12,447	5.939	6.068	0.003	50.219
ifp2	12,447	0.386	0.487	0.000	1.000
perrate	12,389	0.390	0.488	0.000	1.000
manrate	12,189	1.538	1.258	0.000	8.500

Variáveis	Model 01		Model 02		Model 03		Model 04
sharpe	b	rse	b	rse	b	rse	b	rse
nllockup	0.023^* * significant at 10%; rse = robust standard error.	0.012	-	-	-	-	-	-
nlminbal	-	-	0.010^* ***** significant at 1%;	0.002	-	-	-	-
exitrate	-	-	-	-	0.161^* ***** significant at 1%;	0.031	-	-
liqconst	-	-	-	-	-	-	0.107^* ***** significant at 1%;	0.020
nlnw	0.083^* ***** significant at 1%;	0.007	0.088^* ***** significant at 1%;	0.006	0.107^* ***** significant at 1%;	0.011	0.081^* ***** significant at 1%;	0.006
age	-0.017^* ***** significant at 1%;	0.002	-0.016^* ***** significant at 1%;	0.002	-0.024^* ***** significant at 1%;	0.004	-0.016^* ***** significant at 1%;	0.002
ifp2	0.150^* ***** significant at 1%;	0.019	0.139^* ***** significant at 1%;	0.020	0.141^* ***** significant at 1%;	0.026	0.136^* ***** significant at 1%;	0.019
manrate	-0.042^* ***** significant at 1%;	0.007	-0.050^* ***** significant at 1%;	0.007	-0.047^* ***** significant at 1%;	0.010	-0.041^* ***** significant at 1%;	0.007
perrate	0.060^* ***** significant at 1%;	0.020	0.064^* ***** significant at 1%;	0.020	-0.010	0.026	0.034^* * significant at 10%; rse = robust standard error.	0.019
Constant	2.028^* ***** significant at 1%;	0.113	1.981^* ***** significant at 1%;	0.113	1.956^* ***** significant at 1%;	0.183	2.077^* ***** significant at 1%;	0.111
Observations	10,039		8,894		5,506		10,064
Maximum VIF	1.29		1.25		1.27		1.33

Variables	Model 01		Model 02		Model 03		Model 04
sharpepos	b	rse	b	rse	b	rse	b	rse
nllockup	0.074^* ***** significant at 1%;	0.016	-	-	-	-	-	-
nlminbal	-	-	0.011^* ***** significant at 1%;	0.003	-	-	-	-
exitrate	-	-	-	-	0.091^ significant at 5%;	0.040	-	-
liqconst	-	-	-	-	-	-	0.162^* ***** significant at 1%;	0.027
nlnw	0.045^* ***** significant at 1%;	0.009	0.046^* ***** significant at 1%;	0.009	0.056^* ***** significant at 1%;	0.015	0.042^* ***** significant at 1%;	0.009
age	-0.018^* ***** significant at 1%;	0.002	-0.017^* ***** significant at 1%;	0.002	-0.027^* ***** significant at 1%;	0.004	-0.016^* ***** significant at 1%;	0.002
ifp2	0.106^* ***** significant at 1%;	0.025	0.095^* ***** significant at 1%;	0.026	0.049	0.034	0.096^* ***** significant at 1%;	0.025
manrate	-0.047^* ***** significant at 1%;	0.010	-0.057^* ***** significant at 1%;	0.010	-0.050^* ***** significant at 1%;	0.014	-0.045^* ***** significant at 1%;	0.010
perrate	0.153^* ***** significant at 1%;	0.027	0.164^* ***** significant at 1%;	0.028	0.080^ significant at 5%;	0.034	0.131^* ***** significant at 1%;	0.027
Constant	2.633^* ***** significant at 1%;	0.164	2.720^* ***** significant at 1%;	0.168	2.921^* ***** significant at 1%;	0.252	2.775^* ***** significant at 1%;	0.160
Observations	3,812		3,395		2,161		3,819
Maximum VIF	1.25		1.27		1.24		1.37

Variables	Model 01		Model 02		Model 03		Model 04
sortino	b	rse	b	rse	b	rse	b	rse
nllockup	0.136^* ***** significant at 1%;	0.046	-	-	-	-	-	-
nlminbal	-	-	0.032^* ***** significant at 1%;	0.010	-	-	-	-
exitrate	-	-	-	-	0.322^ significant at 5%;	0.128	-	-
liqconst	-	-	-	-	-	-	0.389^* ***** significant at 1%;	0.087
nlnw	0.133^* ***** significant at 1%;	0.026	0.130^* ***** significant at 1%;	0.029	0.170^* ***** significant at 1%;	0.042	0.127^* ***** significant at 1%;	0.026
age	-0.046^* ***** significant at 1%;	0.006	-0.043^* ***** significant at 1%;	0.006	-0.055^* ***** significant at 1%;	0.011	-0.042^* ***** significant at 1%;	0.006
ifp2	0.426^* ***** significant at 1%;	0.079	0.418^* ***** significant at 1%;	0.084	0.317^* ***** significant at 1%;	0.096	0.391^* ***** significant at 1%;	0.079
manrate	-0.105^* ***** significant at 1%;	0.034	-0.136^* ***** significant at 1%;	0.036	-0.175^* ***** significant at 1%;	0.045	-0.102^* ***** significant at 1%;	0.034
perrate	0.561^* ***** significant at 1%;	0.086	0.574^* ***** significant at 1%;	0.092	0.389^* ***** significant at 1%;	0.101	0.495^* ***** significant at 1%;	0.085
Constant	14.197^* ***** significant at 1%;	0.578	14.627^* ***** significant at 1%;	0.632	17.125^* ***** significant at 1%;	0.961	14.422^* ***** significant at 1%;	0.571
Observe.	10,039		8,894		5,506		10,064
Max. VIF	1.29		1.25		1.27		1.33

Variables	Model 01		Model 02		Model 03		Model 04
alfa	b	rse	b	rse	b	rse	b	rse
nllockup	0.309^* * significant at 10%; rse = robust standard error.	0.179	-	-	-	-	-	-
nlminbal	-	-	0.082^ significant at 5%;	0.037	-	-	-	-
exitrate	-	-	-	-	2.108^* ***** significant at 1%;	0.464	-	-
liqconst	-	-	-	-	-	-	1.035^* ***** significant at 1%;	0.333
nlnw	1.105^* ***** significant at 1%;	0.100	1.195^* ***** significant at 1%;	0.099	1.509^* ***** significant at 1%;	0.148	1.097^* ***** significant at 1%;	0.100
age	-0.215^* ***** significant at 1%;	0.024	-0.208^* ***** significant at 1%;	0.025	-0.403^* ***** significant at 1%;	0.061	-0.207^* ***** significant at 1%;	0.026
ifp2	1.358^* ***** significant at 1%;	0.284	1.236^* ***** significant at 1%;	0.296	1.335^* ***** significant at 1%;	0.391	1.243^* ***** significant at 1%;	0.284
manrate	-0.653^* ***** significant at 1%;	0.121	-0.747^* ***** significant at 1%;	0.127	-0.530^* ***** significant at 1%;	0.167	-0.628^* ***** significant at 1%;	0.121
perrate	0.407	0.294	0.542^* * significant at 10%; rse = robust standard error.	0.318	-0.599	0.402	0.190	0.304
Constant	-5.939^* ***** significant at 1%;	1.821	-6.859^* ***** significant at 1%;	1.832	-3.669	2.826	-5.443^* ***** significant at 1%;	1.817
Observations	10,039		8,894		5,506		10,064
Maximum VIF	1.29		1.25		1.27		1.33

Variables	Observations	Average	Standard Deviation	Min	Max
stocks	12,447	51.498	42.774	0	112.621
funds	12,447	39.546	46.742	0	102.748
difs	12,447	-36.283	38.215	-103.786	57.062
diff	12,447	-12.358	52.286	-102.071	100.094
difa	12,447	-48.683	58.399	-404.701	100.094
liqconst	12,447	0.411	0.492	0	1
iliqcart	12,447	0.141	0.348	0	1
restr*iliqcart	12,447	0.076	0.266	0	1

Variables	Model 01 difa		Model 02 diff		Model 03 dift
Variables	b	rse	b	rse	b	rse
liqconst	6.456^* ***** significant at 1%;	0.939	8.693^* ***** significant at 1%;	2.462	15.198^* ***** significant at 1%;	2.637
nlnw	1.462^* ***** significant at 1%;	0.369	-2.786^* ***** significant at 1%;	0.508	-1.280^ significant at 5%;	0.636
age	-0.775^* ***** significant at 1%;	0.110	-0.418^ significant at 5%;	0.184	-1.186^* ***** significant at 1%;	0.207
ifp2	54.307^* ***** significant at 1%;	0.780	-27.689^* ***** significant at 1%;	2.679	26.504^* ***** significant at 1%;	2.789
manrate	1.435^* ***** significant at 1%;	0.395	-5.932^* ***** significant at 1%;	1.059	-4.510^* ***** significant at 1%;	1.118
perrate	3.241^* ***** significant at 1%;	0.873	-16.665^* ***** significant at 1%;	2.482	-13.404^* ***** significant at 1%;	2.631
Constant	-91.514^* ***** significant at 1%;	6.322	58.348^* ***** significant at 1%;	9.172	-33.973^* ***** significant at 1%;	11.300
Observations	11,629		11,629		11,629
Maximum VIF	1.33		1.33		1.33

Variáveis	Model 01 sharpe		Model 02 sharpepos		Model 03 sortino		Model 04 alpha
Variáveis	b	rse	b	rse	b	rse	b	rse
iliqcart	-0.010	0.034	0.022	0.044	0.181	0.119	-0.154	0.465
nlnw	0.084^* ***** significant at 1%;	0.007	0.046^* ***** significant at 1%;	0.009	0.137^* ***** significant at 1%;	0.026	1.116^* ***** significant at 1%;	0.101
age	-0.018^* ***** significant at 1%;	0.002	-0.018^* ***** significant at 1%;	0.002	-0.048^* ***** significant at 1%;	0.006	-0.223^* ***** significant at 1%;	0.025
ifp2	0.160^* ***** significant at 1%;	0.023	0.120^* ***** significant at 1%;	0.029	0.405^* ***** significant at 1%;	0.087	1.498^* ***** significant at 1%;	0.337
manrate	-0.040^* ***** significant at 1%;	0.007	-0.042^* ***** significant at 1%;	0.010	-0.092^* ***** significant at 1%;	0.034	-0.624^* ***** significant at 1%;	0.124
perrate	0.072^* ***** significant at 1%;	0.019	0.195^* ***** significant at 1%;	0.026	0.648^* ***** significant at 1%;	0.083	0.551^* ***** significant at 1%;	0.291
Constant	2.063^* ***** significant at 1%;	0.114	2.734^* ***** significant at 1%;	0.163	14.312^* ***** significant at 1%;	0.574	-5.553^* ***** significant at 1%;	1.850
Observations	10,064		3,819		10,064		10,064
Maximum VIF	1.41		1.38		1.41		1.41

Variáveis	Model 01sharpe		Model 02sharpepos		Model 03sortino		Model 04alpha
Variáveis	b	rse	b	rse	b	rse	b	rse
restr*iliqcart	0.042	0.039	0.065	0.494	0.060	0.125	0.002	0.476
nlnw	0.084^* ***** significant at 1%;	0.006	0.046^* ***** significant at 1%;	0.009	0.136^* ***** significant at 1%;	0.026	1.118^* ***** significant at 1%;	0.100
age	-0.017^* ***** significant at 1%;	0.002	-0.018^* ***** significant at 1%;	0.002	-0.048^* ***** significant at 1%;	0.006	-0.222^* ***** significant at 1%;	0.025
ifp2	0.149^* ***** significant at 1%;	0.020	0.117^* ***** significant at 1%;	0.026	0.456^* ***** significant at 1%;	0.083	1.445^* ***** significant at 1%;	0.294
manrate	-0.039^* ***** significant at 1%;	0.007	-0.042^* ***** significant at 1%;	0.010	-0.098^* ***** significant at 1%;	0.034	-0.618^* ***** significant at 1%;	0.122
perrate	0.073^* ***** significant at 1%;	0.019	0.194^* ***** significant at 1%;	0.026	0.636^* ***** significant at 1%;	0.083	0.562^* * significant at 10%; rse = robust standard error.	0.289
Constant	2.053^* ***** significant at 1%;	0.112	2.731^* ***** significant at 1%;	0.161	14.354^* ***** significant at 1%;	0.574	-5.598^* ***** significant at 1%;	1.821
Observations	10,064		3,819		10,064		10,064
Maximum VIF	1.29		1.25		1.29		1.29

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