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BoE's Bailey wants clarity from fund managers on assets

Wednesday, January 27, 2016 - 18:03
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Fund managers must give investors clarity on the quality of assets they hold and how these are likely to behave in stressed markets, Bank of England Deputy Governor Andrew Bailey said on Wednesday.

[LONDON]Fund managers must give investors clarity on the quality of assets they hold and how these are likely to behave in stressed markets, Bank of England Deputy Governor Andrew Bailey said on Wednesday.

Mr Bailey, who heads the BoE's Prudential Regulation Authority, which supervises banks, said shrinkage in banking balance sheets and corresponding large growth in asset management since the financial crisis only made sense if two conditions were met. "First, that there is no lack of clarity about the nature of the assets held under management," Mr Bailey said in a speech delivered to a conference in Dublin.

The recent failure in the United States of the Third Avenue Focused Credit Fund did not produce major ripples in markets as it was clear to investors in advance that the assets were not of the highest quality, Mr Bailey said. "The second condition to meet is that there is no illusion about the liquidity of the assets. It is critical that investor expectations are well adjusted to the prevailing liquidity conditions," Mr Bailey said.

While Mr Bailey does not currently supervise asset managers, on Tuesday he was named as the next chief executive of the Financial Conduct Authority, which does regulate the sector and has a remit to protect investors from unsuitable products.

Central bankers are concerned that investors in bond funds in particular could face difficulties if many tried selling at the same time, given there are fewer banks prepared to buy.

The liquidity, or ease of redemptions or sales, promised by funds to their investors should mirror the market liquidity of the underlying investments, Bailey said.

At the global level, securities market regulators, whose ranks Mr Bailey will join in coming months, are looking at whether new rules are needed for handling large scale redemptions at funds during market turmoil.

REUTERS