Fund management companies that invest billions of pounds of savers’ money pose a threat to global financial stability and regulators should police them more closely, according to the International Monetary Fund.
Delegating day-to-day investment decisions to large asset managers, as pension funds and many individual savers do, “introduces fundamental incentive problems between end investors and fund managers, which can induce destabilising behaviour and amplify shocks,” the Washington-based organisation says.
Asset management has so far largely escaped the more intrusive regulatory regime introduced for banks in the wake of the global financial crisis.
But in a chapter from its twice-yearly Global Financial Stability Review (GFSR), released on Wednesday in advance of its spring meetings next week, the IMF identifies fund managers as a key risk – even those offering “plain vanilla” products rather than exotic investments such as hedge funds.
It believes that “herding” behaviour – as fund managers charge into the same asset classes simultaneously in order to hit their performance targets – is “prevalent and increasing” – particularly in emerging market assets.
via The Guardian