(May 27, 2014) — BlackRock has proposed redemption fees for some investment funds to stop potentially damaging runs on portfolios.
The investment management giant was responding to an investigation by the Financial Stability Oversight Council (FSOC) in the US, which is assessing whether asset managers or giant funds pose a potential threat to the US economy.
“While we agree that funds may experience increased redemptions in periods of high volatility, we do not believe that redemptions necessarily create systemic risk,” said BlackRock Vice Chairman Barbara Novick.
“The SEC… could use the rulemaking process to grant mutual funds and/or their boards the ability to suspend redemptions temporarily, to put a fund into liquidation or to enhance redemption fee provisions.”
Novick added that the SEC could also consider tailoring rules for “selective fund strategies” to help manage redemptions.
In the opening address to the FSOC Mary Miller, the Department of the Treasury’s under secretary for domestic finance, said the council’s investigation should “analyse all the major sectors of the financial system”.
“The council is working to determine what, if any, risks exist in the asset management industry, before we consider what, if any, action the council should take in this area,” Miller said. “Our work to assess these risks is ongoing, and it will be based on a thorough analysis of information from a wide array of sources.”
Fund managers are coming under increasing scrutiny from regulators as the response to the financial crisis broadens. As banks’ balance sheets improve and new, tighter regulations are put in place, regulators in the US and Europe—including the FSOC and the Financial Stability Board—are turning their attentions to other large institutions with a view to avoiding another collapse on the scale of Lehman Brothers.
Related link: Are Asset Managers Too Big To Fail?