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Investment funds need to step up efforts to ensure they have the liquidity to handle periods of market stress, European regulators say.

Following a supervisory review that focused on liquidity risk in corporate debt funds and real estate investment funds, the European Securities and Markets Authority (ESMA) and the region’s national regulators called for improvements in liquidity stress-testing and valuing illiquid assets.

The review arose from concerns about liquidity and valuation issues when the onset of the pandemic sparked financial market turmoil in March 2020.

While the regulators found that the funds they reviewed don’t represent substantial risk to financial stability, they also said there’s room for improvement in managing liquidity risk, and they called for continued monitoring.

In the year ahead, ESMA intends to facilitate discussions among regulators on the use of liquidity stress testing, and it plans to carry out a review of valuation practices in both traditional and alternative investment funds, it said.