Pacific Investment Management Co. head Douglas Hodge sees an opportunity to take business from banks by providing credit to the global economy, even as the company strives to avoid lenders’ too-big-to-fail designation.
Global rules enacted to prevent another financial crisis have forced lenders to shrink their balance sheets, creating a need for credit in most of the world where about 80 percent of debt financing comes from banks, said Hodge, Pimco’s chief executive officer.
“To the extent banks are unwilling or unable to lend in ways they have in the past, which is indeed what has happened and continues to happen, that creates opportunities for private capital,” he said today at a conference in Toronto.
Pimco, which has $1.6 trillion under management, and other large fund managers are also trying to fend off regulators seeking to label them as systemically important to the financial system and subject to the strict oversight that’s hampering banks.
The designation would result in higher capital requirements and tougher scrutiny intended to make them more resilient in a crisis. Rules already enacted in the U.S. and globally have made it more expensive for banks to hold certain securities and have barred them from trading with their own money.
In a May 29 letter to the Financial Stability Board, a group of global regulators, Hodge disputed the idea that Pimco and other large fund companies could endanger the financial system if they faced a client run in times of market stress. Unlike with a bank, he said in his letter, its understood money invested with an asset manager might not be returned in full.
Potential subjects of new FSB rules, from Vanguard Group Inc. to BlackRock Inc., say that rather than focusing on individual investment managers because of their size or type, regulators should look instead at activities by investment managers that increase risk.
The International Organization of Securities Commissions, working with the FSB on its plan to target large investment managers, said last month that priority would now be given to a broader study of “asset management activities.”