* Haldane says funds can pose risks because of size,
* Funds "next frontier of macro-prudential policy"
* Haldane says not clear if "behemoths" need more regulation
(Adds industry reaction)
By Huw Jones
LONDON, April 4 A top Bank of England official
put the world's $87 trillion asset-management industry on alert
on Friday, saying it posed some of the same "too big to fail"
risks that are being tackled by reforms at major banks.
Although asset managers such as Blackrock, Fidelity, Allianz
and Axa do not make loans, which can put them at risk if
borrowers default, they are still big enough to hurt the market,
said the BoE's executive director of financial stability Andy
"Their size means that distress at an asset manager could
aggravate frictions in financial markets, for example through
forced asset fire sales," Haldane said in a speech likely to
upset the funds sector.
Haldane said he was not proposing action now but described
asset management as "the next frontier for macro-prudential
policy," referring to the kind of specific controls on credit
and capital requirements central banks are imposing on banks.
"I don't know at present whether the case is sufficiently
strong for us as macro-prudential regulators to want to actively
intervene," he said. "But what I can say with 100 percent
confidence is we need to better understand the market dynamics."
In the United States, the Federal Reserve is showing more
interest in asset-management firms, which so far have been
regulated by securities supervisors.
Haldane, who is due to take over as the Bank of England's
new chief economist in June, has gained a reputation for bold
thinking in his current role as head of its financial risk
His speech at the London Business School's Asset Management
Conference effectively broadened the regulatory spotlight in
Britain on asset managers from specific issues such as fees paid
Mutual funds - one kind of asset manager - say they pose no
risks and are not leveraged like banks, and they point out that
none among them failed or caused problems during the 2007-09
Britain's Investment Management Association, an industry
body, said that apart from the issues raised by Haldane, "we
would add that structural changes to markets, driven by recent
legislation, threaten to reduce capacity and make prices more
The Association of British Insurers, whose members are major
holders of assets, had no comment on Haldane's speech.
The asset-management sector is already lobbying against
draft plans by the Financial Stability Board, the regulatory arm
of the Group of 20 economies, to designate funds over $100
billion as systemically important and hence subject to extra
Haldane said fund-management assets may more than quadruple
by 2050 to $400 trillion as populations grow and get older and
richer. In Britain, their assets have grown from less than 50
percent to more than 200 percent of gross domestic product since
Haldane said recent trends have seen "behemoths" moving into
illiquid assets and index-linked, passively managed funds and
away from the usual actively managed funds in blue chips and
"These trends potentially have implications for financial-
market dynamics and systemic risk - for example, greater
illiquidity risk, correlated price movements and susceptibility
to runs," Haldane said.
Big funds are not "insolvency immune" he said. They could
amplify swings in markets and the wider economy, giving a false
picture of the price of risk. That might curtail financing
through equity and long-term debt, hurting growth, Haldane said.
Haldane said where the sector's activity poses risks to the
wider financial system and economy, then new, macroprudential
controls may be justified, even when no leverage is present and
banks "are not at the scene of the crime".
Robert Jenkins, a former member of the BoE's Financial
Policy Committee, which decides on macroprudential policy,
questioned some of Haldane's arguments and asked if the sector
needs controlling. "If so, will you move on to greed and fear
after that?" Jenkins quipped.
(Reporting by Huw Jones; Editing by William Schomberg and Hugh