In relation to interconnectedness with other market participants (either via direct links or via derivatives or similar asset holdings), investment funds might spread risk and market tensions to other market participants and sectors thereby possibly contributing to systemic risk as well (cf. LDI episode).

Investment funds with higher levels of leverage are in general more exposed to larger market swings with potential knock-on effects on direct counterparties, investors, and the companies they invest in. They might in addition act in a procyclical manner during market stress, leading also to an amplification of liquidity risks when deleveraging.

Open-ended investment funds (OEFs) may be redeemable at short notice, which could result in situations where they are invested in less liquid assets at a moment when a large number of investors wishes to redeem their fund shares at the same time, in times of market tensions, thus presenting a liquidity mismatch. This might lead to increased sales of the underlying assets by IFMs with a potential impact on market prices as well as consequences for other market participants being exposed to the same or correlated asset types.