January 25, 2013 6:40 pm

‘Fund managers didn’t cause the crisis’

What does the European Fund and Asset Manager Association (Efama) view as the big issue in the midst of all the regulation that is being proposed in respect of OTC derivatives?

I see two key issues. First, we have the number of regulations and their interpretation, at global, regional and country level. A safer operating environment for financial institutions is welcome, but the multitude of initiatives do not necessarily have the same definitions or interpretations. There needs to be greater homogeneity and co-operation to improve the existing situation dramatically and to achieve the stated objectives. Second, we have questions surrounding liquidity and collateral, which might reduce risk for investors, but will also increase their costs and reduce their revenues.

What is Efama’s official position as an industry representative?

It is crucial to restore investor confidence in markets, so we believe that the various initiatives must be applied in a co-ordinated and structured manner. If derivatives are forbidden or made too expensive, returns to investors will fall.

What do you see as the key challenges facing your members?

I would say we face strategic and operational challenges, from the governance and organisational requirements of the proposed OTC derivatives central clearing platform, when fund managers have no contractual link with it, to the holding and delivery of collateral, and the segregation of client assets. How, for instance, do we maintain the level of segregation of assets required to remain compliant with regulatory requirements? There will be higher operational and IT costs involved in aligning reporting to the required standards, as well as risk reporting and risk mitigation. There is a price to pay for safety.

What are the possible implications? Might some fund managers decide to leave the industry?

We face a new environment, one that will change the face of OTC derivatives. There could well be mergers.

At the very least, some fund managers who have previously conducted their own administration in-house will decide to focus on their core business, investing, and outsource the administration, inconvenience and uncertainty to a specialist provider. The technical aspects are challenging. But the industry is populated with intelligent and innovative people. It will cope.

Have the challenges of recent years driven Efama to change or lobby for change?

We work closely with the various regulatory bodies and lawmakers around the world, engaging in debate and dialogue in combined attempts to find common, practical solutions. We gather information on the proposals they make, analyse that information and share it, working to unify the message from the buy side. It’s very much a two-way street.

Do you have confidence in the regulators and lawmakers? Do you think they know what they are doing?

Yes. I do. Central bankers and regulators are an audience with an open mind. We are in constant dialogue with them, and our meetings are all gatherings of professional, constructive and experienced people.

Is the asset management industry being unfairly treated?

It was not fund managers who caused the international financial crisis, but [like the hero in Life of Pi] we are all in the same boat together today, trying to handle several hungry Bengal tigers at once. There is no distinction being made between different components of the financial services world.

Everything is being regulated because that is the political mood, and we have had to address issues that have historically been the preserve of the sell side. Like it or not, we have to deal with the situation as it is and as it continues to develop.

Your own role as director-general of Efama must be significantly more of a challenge than in the past. More stressful and demanding?

I took the job on in September 2007. I could hardly have started at a more challenging time. So yes, my own role is changing, evolving as Efama’s role evolves. There is greater pressure from external deadlines to tackle the variety of issues erupting simultaneously in different places. Less than a decade ago it was probably quiet and even boring. You wouldn’t say that now. Everything today is much more intense than it used to be.

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