Updated with correction
As U.S. and international regulators consider ways to monitor risk among large money managers, the industry is trying to fill in some of the information gaps.
A study released April 4 by the Securities Industry and Financial Markets Association's asset management group, which looked at nine of the largest managers with $3.86 trillion in separate account assets, found 99% of large separate accounts were invested in long-only strategies and 53% were in passively managed index strategies. Less than 4% of the firms employ leverage and less than 2% engage in securities lending. All of the responding firms monitor counterparty risk, SIFMA found.
“The survey shows that they're (the money managers) pretty straightforward and do not pose systemic risk. It is shedding light on an area that didn't have much light,” said Barbara Novick, vice chairwoman and head of government relations for BlackRock.Inc.
The report came several months after the U.S. Financial Stability Oversight Council, created by the Dodd-Frank Act to identify excessive risks to the U.S. financial system, in September identified activities of 20 of the largest U.S. money managers as possible sources of risk, but acknowledged insufficient data on separate accounts, counterparty risks and leverage, including the repo market and securities lending.
The SIFMA study, which found that 35% of the large separate accounts are owned by pension funds and another 15% by insurance companies, was sent to the U.S. Securities and Exchange Commission and to the Financial Stability Board in Basel. “We are very hopeful that the information will be taken to heart,” said Timothy Cameron, New York-based managing director and head of the asset management group at SIFMA, which represents money managers, securities firms and banks. “Risk doesn't permeate that way. You really have to look at marketwide activities, things that are going to be contagious in nature,” Mr. Cameron said in an interview.
The FSOC report was prepared by the Treasury Department's Office of Financial Research and included a list of 20 top money managers by assets under management that was topped by BlackRock, Vanguard Group Inc., State Street Global Advisors, Fidelity Investments and Pacific Investment Management Co.
The Financial Stability Board and the Madrid-based International Organization of Securities Commissions are working on their own assessment methodology for non-bank, non-insurer global systemically important financial institutions.
FSOC officials have been criticized by House Oversight and Government Reform Committee Chairman Darrell Issa, R-Calif., for attempting to “override the professional judgment” of SEC regulatory staff. “The committee is concerned that such efforts are intended to justify a predetermined outcome: additional regulation of the financial sector,” Mr. Issa wrote in an April 7 letter to Treasury Secretary Jacob Lew.
A Treasury spokeswoman said officials will respond to Mr. Issa’s letter “in due course.” As FSOC reviews asset management activities, “the council will continue to be informed by the work of the OFR and welcomes continued engagement with asset managers and other stakeholders from across the spectrum,” she said.
