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SIFMA’s Asset Management Group (AMG) on Friday submitted comments on the consultative document entitled “Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically Important Financial Institutions” (NBNI G-SIFIs) (the “Consultative Document”) published by the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO). SIFMA AMG appreciates the FSB’s and IOSCO’s efforts to understand the asset management industry’s perspective as they attempt to create an assessment methodology for NBNI G-SIFIs.
SIFMA AMG submitted two letters: a comment letter focused on the assessment methodology for NBNI G-SIFIs, and a supplemental letter to the FSB and the SEC that provides important clarifications on the risk profile of separately managed accounts (SMAs) gleaned from a SIFMA AMG survey of asset managers. SIFMA AMG conducted the survey after the FSB and IOSCO identified SMAs as an area for further research. In total, nine managers with a combined firm total AUM of $11.2 trillion and a combined total AUM in SMAs of $3.98 trillion voluntarily participated in this survey. The majority of questions in the survey focused on large SMAs with at least $75 million in assets.
In its comment letter, SIFMA AMG members recommend the FSB and IOSCO shift the focus of the investment fund assessment methodology from investment funds to their activities. SIFMA AMG members believe it would be more appropriate to assess and regulate activities in which investment funds and other capital markets participants engage than it would be to try to identify individual entities that represent concentrated risk to such a degree that they warrant different regulation than their competitors.
In its supplemental letter, SIFMA AMG highlights the results of its survey that found asset management firms manage SMAs using the same robust process applied to all fiduciary assets and accounts that they manage. The survey found that 99% of the large SMAs surveyed were invested in long-only strategies, and 53% were invested in passively managed, index strategies. In aggregate, less than 4% of the large SMAs surveyed employ leverage and the average leverage reported for these accounts is modest. Less than 2% of the large SMAs surveyed held illiquid securities and less than 2% engage in securities lending and the majority of those portfolios are passively managed. 100% of respondents robustly monitor counterparty risk. Approximately 35% and 15% of large accounts surveyed are owned by pension funds and insurance companies, respectively, and are subject to regulation by the clients' regulators in addition to the SEC's oversight of the asset managers. Typically, SMAs are held by sophisticated investors who understand risk exposures.
“SIFMA AMG strongly encourages regulators to consider the unique characteristics of the asset management industry as they develop their investment fund assessment methodology and work to manage systemic risk. The FSB and IOSCO should consider an activities-based approach to more effectively manage risk and avoid misguided regulation that could negatively impact the asset management industry. Further, regulators should recognize that separately managed accounts do not pose a specific or unique threat to financial stability,” said Tim Cameron, managing director and head of SIFMA’s Asset Management Group.
SIFMA AMG’s comment letter notes that investment funds have fundamentally different risk profiles than banks and insurers and lack many of the characteristics that were cited to support bank and insurance company G-SIFI designations. Risk among investment funds, and in the asset management industry and the capital markets more broadly, is not concentrated in individual entities. Rather, it is broadly distributed and migrates across sectors of the industry as markets shift and respond to exogenous factors.
SIFMA AMG believes that any final investment fund assessment methodology must be transparent, clearly defined, objective, based on reliable data and applied consistently across jurisdictions. We believe that the proposed investment fund assessment methodology fails to meet that standard.
SIFMA AMG’s comment letter further explains that G-SIFI designation and selective regulation of a small number of investment funds would likely have perverse and negative regulatory and market consequences. We fundamentally believe that G-SIFI designation of a few large investment funds would not reduce the overall level of risk associated with global asset management activities.
SIFMA AMG's general comment letter is available here:http://www.sifma.org/issues/item.aspx?id=8589948402
SIFMA AMG’s supplemental letter is available here:
http://www.sifma.org/issues/item.aspx?id=8589948419
