Tim Thornton, COO, Fund Services, MUFG Investor Services, comments on the rising capital requirements for fund managers…
Following the ‘too big to fail’ challenges of global banks, it is not surprising to see regulators turning their attention to large fund managers. While there is no solid evidence that they pose a systematic risk or contributed to the banking crisis; the increasing consolidation of the industry into fewer, larger managers does concentrate risk.
Recent examples of asset management companies being asked to increase capital requirements demonstrate that regulators are concerned about the dangers posed by the liquidity crisis and the impact it could have on large fund managers, and the sector as a whole. Seemingly liquid markets may be more illiquid than they appear due to cross holdings and concentrations among fewer, larger buyers and sellers.
Given the current challenging market environment and investor uncertainty, further regulatory action on capital requirements is imminent. It is important for fund managers growing in size to have service providers who are large enough to handle their scale and global model, and the imposition of a banking-like regulatory environment. It is also critical for managers to assess their providers to ensure they do not add concentration risk.
