BlackRock is calling on regulators to consider uniform stress testing, liquidity, and investor disclosure rules for investment funds globally, as watchdogs continue to probe the systemic risks posed by the asset management industry.
In a new research paper, BlackRock puts the spotlight on inconsistencies in global investment fund rules, calling for a more standardised approach from international bodies that would bring together what it sees as the most effective rules from a variety of jurisdictions.
The world’s largest fund manager is encouraging regulators to limit systemic risk through the structure of funds, rather than by designating a select group of managers or funds as systemically important.
Watchdogs globally have spent the last year mooting the risks posed by the sector and whether they warrant additional regulation. BlackRock is among the industry heavyweights that have been vocal in arguing that regulators should not designate specific firms or funds as systemically risky.
Among BlackRock’s new recommendations are consistent limits on the illiquid assets funds can hold, consistent risk management practices including stress tests and better explanations for investors of the liquidity and risk management of various funds. These regulations currently exist in a variety of forms globally, but differ from jurisdiction to jurisdiction.
Speaking to Financial News Barbara Novick, vice chairman of BlackRock, said: “Let’s raise the bar globally. Let’s get best practices from one regime to another.”
She added: “There are products and activities that could be improved that would improve the financial ecosystem for everyone. Some would call that microprudential regulation but so be it. It gives a macroprudential benefit.”
The paper is one of two published this week by the prolific fund manager. A second piece combats concerns raised by a number of global watchdogs related to emerging market debt, high yield debt and bank loan funds.
In that document, seen by Financial News, BlackRock notes that the asset classes only represent a small portion of the overall debt market. It adds that historically all three asset classes have been able to handle investor redemptions without causing widespread problems in the financial markets.
The paper echoes sentiment voiced last week by trade body The Investment Company Institute. Paul Schott Stevens, president of ICI, said at a financial services conference in Malta last week: “Proponents of the myth of the flighty investor are persistent – they keep trying out new theories. In every case they raise – high yield bond funds, emerging market funds, you name it – we have tested the data. And we have never found evidence to support their speculations that long-term funds destabilise markets.”
He stressed the point that while there is transparency around fund flows, the products hold just a small percent of the investable universe. Stevens added that activity-based regulation was a better way forward that would cover a broader section of the capital markets. He said: “We believe that it’s impossible to understand the functioning and risks of the capital markets without looking beyond the well-lit regulated fund sector and considering the other players who account for the vast majority of holdings and trading.”
BlackRock’s two new research papers come four months after the fund manager first called for more uniform fund structures and recommended that asset owners pay for the cost of redemptions to minimise run risks.
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