/

Nematrian Reference Library

[this page | back links]

Set out below is information (held by the Nematrian website) on the reference you have selected

Pages on this website that contain links to this reference include SystemicRiskReferences4


ReferenceTitleLink
IMF (2015)Global Financial Stability Report, April 2015, Chapter 3: The Asset Management Industry and Financial Stabilityhere

Summary (partial)

"Financial intermediation through asset management firms has many benefits. It helps investors diversify their assets more easily and can provide financing to the real economy as a “spare tire” even when banks are distressed. The industry also has various advantages over banks from a financial stability point of view.

Nonetheless, concerns about potential financial stability risks posed by the asset management industry have increased recently as a result of that sector’s growth and of structural changes in financial systems. Bond funds have grown significantly, funds have been investing in less liquid assets, and the volume of investment products offered to the general public in advanced economies has expanded substantially. Risks from some segments of the industry - leveraged hedge funds and money market funds - are already widely recognized.

However, opinions are divided about the nature and magnitude of any associated risks from less leveraged, “plain-vanilla” investment products such as mutual funds and exchange-traded funds. This chapter examines systemic risks related to these products conceptually and empirically.

In principle, even these plain-vanilla funds can pose financial stability risks. The delegation of day-to-day portfolio management introduces incentive problems between end investors and portfolio managers, which can encourage destabilizing behavior and amplify shocks. Easy redemption options and the presence of a “first-mover” advantage can create risks of a run, and the resulting price dynamics can spread to other parts of the financial system through funding markets and balance sheet and collateral channels.

The empirical analysis finds evidence for many of these risk-creating mechanisms, although their importance varies across asset markets…"


Additional Nematrian Commentary

This chapter is part of the wider April 2015 IMF Global Financial Stability Report. It explores the topical issue (at the time) of whether asset management involving “plain-vanilla” investment products can create systemic risk. The chapter argues that in some respects this type of asset management may do although the chapter does not then explore how important the risks identified are or whether any large asset managers (or funds) should be classified as “systemically important”. It also notes that larger funds do not necessarily contribute more to systemic risk. Instead, the funds’ investment focus seems to be a more important driver than their size alone.

Given this analysis, it concludes that oversight of the industry should be strengthened, with better microprudential supervision of risks and through the adoption of a macroprudential orientation. It argues that securities regulators should shift to a more hands-on supervisory model, supported by global standards on supervision and better data and risk indicators.


See here to choose a new Category/Sub-Category or here for a list of all references held by the Nematrian website. Please contact us if any of the above material is inaccurate or if there are references you think should be included that we have excluded or vice-versa.
Desktop view | Switch to Mobile