Regulators could be unintentionally creating asset managers that are “too big to fail”, a situation prevalent in the banking industry in the run-up to the financial crisis, an investment management director has said.
Indexx Markets’ James d’Ath said regulation aimed at making investment management more transparent and accountable favoured larger groups.
This was because they were more able to afford the cost of implementing new regulations, which often involved hiring more staff and spending money to employ disclosure methods.
This in turn disfavoured smaller groups and could lead to more investors perceiving larger fund houses to be safer and more transparent, attracting greater numbers of investors.
Mr d’Ath highlighted the issue of the FCA asking fund groups to stop using investors’ capital to pay brokers for research services, which could be a more significant headwind for smaller firms.
“The regulator is again inadvertently laying the groundwork for a concentration of risk, which could be similarly described as systemic,” he said
He added while the regulator had been pushing “admirable and worthwhile” causes, such as cost and transparency, these changes also tended to favour the bigger asset managers.
“The net result is driving business to the providers that have economies of scale to implement regulatory change, thereby feeding the bubble,” Mr d’Ath said.
The top-10 asset managers control about 35 per cent of the global total assets under management.
