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What happened to Silicon Valley Bank?
On Friday 10 March, Silicon Valley Bank (SVB), headquartered in the United States, collapsed as a result of its customers withdrawing a total of $42bn of deposits.
To attempt to meet these withdrawals, SVB sold a $21bn bond portfolio it had intended to hold to maturity. However, the sharp fall in bond prices over the past year meant that the capital generated from this sale fell well below what SVB had paid to acquire it. The US Treasury and Federal Reserve announced on Sunday night (19 March) that the Federal Deposit Insurance Corporation would provide emergency funding to protect SVB’s depositors.
SVB UK, the UK branch of the lender had 3,000 UK clients, nearly half of whom had deposits over the £85,000 FSCS protection limit. In order to protect UK customer deposits, on Monday 13 March the UK Treasury announced that it had approved the sale of SVB’s UK arm to Europe’s biggest bank, HSBC, for a symbolic £1.
SVB’s business model focused on technology company start-ups whose assets they were overexposed to. When the value of those technology companies came under pressure from rising interest rates, SVB’s lack of diversification meant that many customers withdrew their deposits simultaneously due to fears of the bank’s solvency.
What does the bank's collapse mean for investors in LV= Smoothed Managed Funds?
While our asset manager, Columbia Threadneedle Investment’s funds have exposure to SVB, we can confirm that, in relation to the LV= Smoothed Managed Funds, there is only a very limited exposure through the Columbia Threadneedle Dynamic Real Return fund. At 28 February, this was an allocation of just 0.09% to this stock.
The CT American Fund, which provides the US equity exposure for the Smoothed Managed Funds, did hold SVB shares until October last year. However, the team sold the holding as there were alternative stocks they preferred at the time.
We are able to confirm and reassure advisers that no Smoothed Managed Fund has an exposure of more than 0.01% to SVB, making the impact of this collapse minimal to your clients.
How does ‘double governance’ benefit my clients?
Our multi-award winning in-house team of investment professionals take an active ‘double governance’ approach to working with our fund managers. This means we are responsible for designing and building the investment mandate that Columbia Threadneedle Investments manage assets against. We also work with them on an ongoing basis to provide monitoring and oversee the tactical allocations, with the ability to override investment choices that may not align with our view.
The purpose of our Smoothed Managed Funds is to provide your clients with a calmer investor experience than standard stock market investing over the medium to long term. To meet this purpose, we are constantly monitoring our funds and their underlying assets, and we continue to monitor similar stocks.
Our smoothing process helps to reduce the impact of market volatility, but it won't prevent the investment from dropping in value. Smoothing can be suspended at our discretion if either the underlying price is 80% or less of the averaged or 'smoothed' price, or in exceptional conditions. The fund will typically be valued on the underlying price, or at our discretion, the fund may be valued on a daily gradual averaged price until smoothing is reintroduced (except ISA which would be valued on the underlying price).