BlackRock, Inc. (NYSE:BLK) and Fidelity National Financial Inc (NYSE:FNF) are among the first asset managers to be examined by the Financial Stability Oversight Council (FSOC) to determine whether they are systemically important financial institutions (SIFI). The process is still in the early stages and there is no particular rush to come to a final determination, but asset managers argue that they don’t represent any threat to the general economy and that the additional rules that come with being designated a SIFI could harm competitiveness, reports Ian Katz and Jesse Hamilton for Bloomberg.
FSOC was created by the Dodd-Frank Act to prevent another 2008-style financial collapse, and it has been tasked with determining which companies are “too big to fail.” Additional regulations, including higher capital requirements, are meant to keep these companies solvent during a downturn without having to fund another TARP. So far FSOC has focused on banks, and the majority of SIFIs will be banks when all is said and done, but it has the authority to name any financial institution as a SIFI.
Philip Carret was an investor and founder of Pioneer Fund, one of the first mutual funds in the United States. Carret ran the mutual fund for 55 years, during which time an investment of $10,000 became $8 million. That suggests he achieved a compound annual return of nearly 13% for his investors. Q1 2021 hedge Read More
BlackRock and Fidelity spokespersons on FSOC
“We continue to believe that the asset-management industry, and mutual funds in particular, do not present the types of risk that the FSOC was designed to address,” said Fidelity National Financial Inc (NYSE:FNF) spokesperson Vincent Loporchio, while BlackRock, Inc. (NYSE:BLK) spokesperson Brian Beades simply said that the company “doesn’t comment on rumor or speculation.”
Asset management argument on bailout
Asset management already has one strong argument in their favor: none of them needed a bailout during the last crisis, so there’s no reason to think they will need one in the next. When assets under management are lost, it’s the client who is directly affected. The firm’s ability to earn money is reduced, but the contagion of bank runs that threaten financial security don’t have a real analogue in the asset management sector.
At this point, there’s no reason to assume that either company (or any other asset manager) will be named a SIFI. The Treasury Department has expressed concern that some parts of the industry aren’t completely transparent, but no specific objections have been raised. Besides, FSOC would probably be remiss if it didn’t even look at such a large part of the financial landscape.