Early warning indicator for detection of vulnerabilities of collective investment funds (FIC) Indicador de alerta temprana para la detección de vulnerabilidades de los fondos de inversión colectiva (FIC)

Abstract

Given the high popularity that collective investment funds (CIFs) have been gaining and their growing participation in the financial market, both in terms of the amount of investments and the number of investors, it is necessary to have tools that allow for adequate and timely identification of risks, in order to prevent an effect on the stability of the financial system. However, there is a lack of literature on early warnings for these funds, since most of the papers are focused on the banking sector. This document aims to develop an early warning indicator that allows the identification of CIF vulnerabilities, with enough time of anticipation for poli­cymakers to implement measures for their containment. In order to achieve this objective, a widely known early warning measure in the banking sector, such as the European Central Bank’s Domestic Systemic Risk Indicator (d-SRI), will be adapted to the CIF scenario in Colombia.  The results obtained show that in the event of a shock of one standard de­viation in the CIF early warning indicator (IATE FIC), a drop of 1.4 percentage points in the quarterly growth of the fund’s net value (FNV) is expected in the six months following the occurrence of the shock. The findings showed in this work represent an important advance in the detection of vulnerabilities of invest­ment funds and can be of great help to policymakers in making decisions under scenarios of uncertainty in the future behavior of the CIF industry.