Big corporate bond funds suffer sell-off A number of investment managers for wealthy individuals have cut their exposure to the UK's largest corporate bond funds amid concerns of a severe liquidity crunch if redemptions rise amid a "great rotation" out of fixed income. A handful of large funds have captured the lion's share of an unprecedented wave of investment in UK corporate bond funds since the onset of the financial crisis, with the flagship vehicles of M&G Investments and Invesco Perpetual now managing £18bn between them. But with investment banks having severely curtailed their fixed income market-making activities in the wake of the crisis, there are fears that the largest funds will struggle to sell their chunkiest holdings if there is a spike in redemptions. Jonathan Polin, chief executive of wealth manager Ashcourt Rowan, said: "We moved £150m out [of M&G and Invesco Perpetual] in November because we were concerned about liquidity. If there is a very significant market move it would be difficult for them to extract themselves. If we get this wrong, we should be rightfully shot, so let's do something about it in advance. I know a lot of other discretionary managers have made that call. Tom Becket, chief investment officer at PSigma Investment Management, another wealth manager serving well-off individuals, added: "We have sold out of a lot of core bond funds and built segregated mandates with smaller boutique houses." He described corporate credit markets as "an accident waiting to happen. There has been such a flight of hot money into the asset class. Rathbones, a rival wealth manager, has also avoided the largest bond funds in its multi-manager portfolios because of liquidity concerns. The UK corporate bond and strategic bond sectors have virtually doubled in size to £86bn since 2008, prompting the Financial Services Authority, the City regulator, to raise concerns about liquidity last summer. M&G and Invesco Perpetual admitted they had suffered net outflows from their flagship funds in recent months, but both said they had a sufficient buffer of liquid assets to cope with any spike in redemptions. "We run stress tests; we double or treble the worst case scenario and look at how long we could cope with the markets being closed," said Jim Leaviss, head of retail fixed interest at M&G.