Pimco’s ability to cope with a stampede of investor withdrawals after Bill Gross’s departure gives credence to arguments that mutual funds don’t threaten the broader financial system, the chairman of a global group of market regulators said Monday.
The lack of market turmoil when Pacific Investment Management Co. and the famed bond investor parted ways last year also shows regulators should refrain from treating asset managers like big banks, said Greg Medcraft, chairman of the International Organization of Securities Commissions. While a run on deposits can trigger insolvency for lenders, mutual funds are prepared to deal with surges in redemptions, he said.
“Pimco being able to wind back its positions quickly in a matter of days, it was a pretty damn good test of the liquidity of markets,” Medcraft said.
The world’s biggest money managers won a reprieve last week from being labeled systemically important, which can bring tough oversight and capital rules, when IOSCO said it would instead focus on studying broad “activities” of the asset-management industry. Medcraft said market watchdogs will be “more assertive” in pushing back on claims mutual funds should face strict rules written by bank regulators.
Pimco, which is based in Newport Beach, California, and other fund managers such as BlackRock Inc. have disputed the claim that mutual funds could face a client “run” in times of market stress. Pimco sold about $18 billion of assets in Gross’s Total Return Fund to other Pimco funds, helping the firm meet redemptions that followed his surprise exit.,
Medcraft echoed views that funds aren’t susceptible to runs during his speech at the National Press Club in Washington.
Mutual-fund investors “generally take short-term fluctuations in stride,” Medcraft said. “They don’t necessarily rush to redeem, and that’s the behavior we have seen.”
The Financial Stability Board, which brings together regulators from the Group of 20 nations, said in March that a large asset manager’s failure could reverberate across the financial system, triggering fire sales that harm other investors.
Medcraft said Monday he would make his views on asset managers clear to officials such as the Bank of England Governor Mark Carney and Federal Reserve Governor Daniel Tarullo, as the FSB evaluates the industry. Carney is the current FSB chairman.
“We’re no longer the poor cousin” of the banking regulators who predominate at the FSB, Medcraft said. “I’ve already asked for more say and we’re getting more members” on the board, he said.