By Chris Bruce
Nov. 1 --A Sept. 30 report by the Treasury Department's Office of Financial Research (OFR) on possible systemic risk posed by asset managers is being criticized in an early crop of comments sought by the Securities and Exchange Commission.
The OFR, the data analysis arm of the Financial Stability Oversight Council, said more information is needed on whether mutual funds and other investment vehicles should be designated as systemic risks by the FSOC.
The report, which was a subject of discussion at an Oct. 31 FSOC meeting, is now the focus of comment letters to the SEC, which Sept. 30 set up a website to collect feedback on it.
Letters are still flowing into the SEC, but so far, the early reviews are less than glowing. In an Oct. 31 letter, David Oestreicher, general counsel of T. Rowe Price Associates Inc., a unit of T. Rowe Price Group Inc.(TROW), a major mutual fund firm, said the report “lacks the necessary rigor” to give the FSOC the information it needs.
“The OFR Report is generally inconclusive due to its emphasis on anecdotal claims and a scarcity of supporting data,” Oestreicher said.
Three representatives of the Committee on Capital Markets Regulation, which describes itself as an independent research organization with leaders drawn from the finance, investment, business, law, accounting, and academic communities, said the OFR report “presents an inaccurate and incomplete picture of the asset management market and the risks it poses to the financial system.”
“Although the OFR Report suggests that funds managed by large asset managers are susceptible to runs and fire sales, it does not provide any empirical evidence that such runs or fire sales pose systemic risk or that such runs would occur on asset managers as distinct from funds,” said a Nov. 1 letter by Columbia Business School Dean R. Glenn Hubbard, Brookings Institution Chairman John L. Thornton, and Hal S. Scott, Nomura Professor and director of the program on international financial systems at Harvard Law School.
The report, and any action that could follow from it, could result in asset managers being designated as nonbank systemically important financial institutions (SIFIs) under Section 113 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Firms that receive nonbank SIFI designation are subject to bank-like supervision by the Federal Reserve Board, although the shape of that compliance is the focus of intense debate.
The FSOC asked the OFR to report on the $53 trillion asset management industry. The OFR, though citing gaps in data, said it sees implications for financial stability.
“The failure of a large asset management firm could be a source of risk, depending on its size, complexity, and the interaction among its various investment management strategies and activities,” the OFR report said.
In general, the report focused on mutual funds, hedge funds and private equity funds, funds run by the asset management divisions of banks, and separate accounts for large institutional investors or high net-worth individuals.
Thomas P. Vartanian, a partner with Dechert LLP in Washington, D.C., who represents clients that could be affected by the report, said the report fails to draw vital distinctions between the different structures and strategies used by different asset management firms.
“Reliance on the Report by the FSOC will taint the administrative record and provide a basis for challenging any designation actions by the FSOC that rely upon it, Vartanian said in an Oct. 31 letter.
To contact the reporter on this story: Chris Bruce in Washington at email@example.com
To contact the editor responsible for this story: Joe Tinkelman at firstname.lastname@example.org
The SEC is posting comment letters on its website at http://www.sec.gov/comments/am-1/am-1.shtml. The T. Rowe Price letter is at http://op.bna.com/bar.nsf/r?Open=cbre-9d2qfu. The Capital Markets Committee letter is at http://op.bna.com/bar.nsf/r?Open=cbre-9d2q8r. The Dechert letter is at http://op.bna.com/bar.nsf/r?Open=cbre-9d2nq4. The OFR's Sept. 30 report is at http://op.bna.com/bar.nsf/r?Open=cbre-9d2npf.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)