The liquidity risk impact of new liquidity providers such as hedge funds and private equity is an important credit concern for corporate issuers, says Fitch Ratings in a new report.

While traditional investors such as central and commercial banks, public capital markets and insurance companies still dominate the liquidity pool, they face increased competition, the rating agency notes.

In a new report published today Fitch examines the challenges of assessing liquidity risk for corporate issuers in this changing market paradigm.

“Liquidity in the global credit markets is at an all-time high. However, liquidity is cyclical and, at some point, will recede. The structural change in the credit markets over recent years, which has resulted in the introduction of new liquidity providers, challenges ‘traditional’ assumptions over creditor behaviour in the event of managing debtor liquidity crunches,” Richard Hunter, Fitch’s regional credit officer for Europe says. “As a result, Fitch’s liquidity analysis is particularly focused on a corporate entity’s concentrations of funding and the importance of diversification.”

This report also examines some of the key considerations employed by Fitch in assessing liquidity risk for corporate entities, emphasizing the importance of analyzing all sources and uses of liquidity during periods of market stress, including off-balance sheet and contingent liquidity calls.