BlackRock, the world’s biggest money manager, is encouraging regulators to scrutinize the risk of an investor flight from mutual funds and consider potential restrictions that would help prevent asset sales.
“There is no historical evidence that this type of run has ever occurred, however, it’s worth doing deeper analysis to understand the questions better,” Barbara Novick, BlackRock’s vice chairwoman, said Wednesday.
Regulators, seeking to avoid a replay of the 2008 financial crisis, are contemplating ways to reduce the likelihood that an exodus from funds could freeze financial markets during a sell-off. Much of the focus is on bond mutual funds and whether they might lose assets rapidly if interest rates rise. Investors poured $1 trillion into U.S. bond funds from 2008 to 2012 and pulled $80.5 billion last year, according to data from the Investment Company Institute.
The Financial Stability Oversight Council, a group of regulators led by Treasury Secretary Jack Lew that also includes the chairs of the Fed and the U.S. Securities and Exchange Commission, has been examining whether asset-management firms or their activities may pose systemic threats to the financial system. Large withdrawals can cause a fund manager to sell assets quickly to meet redemptions. If withdrawals are spread among many funds it can cause asset prices to plummet, especially for securities that are illiquid and hard to value.
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The Financial Times recently reported that the Federal Reserve was examining redemption fees for bond mutual funds as a possible tool for preventing runs. But Fed Chairwoman Janet Yellen contradicted the report, saying oversight of the funds industry lies with the SEC.