ALFI is of the view that highly regulated funds such as UCITS or regulated Alternative Investment Funds that comply with detailed diversification rules and are not highly leveraged are not systemically important and do not cause systemic risk. Moreover, ALFI believes asset managers are not a source of systemic risk. Managers are not the counterparty to trades they conduct on behalf of their clients (agency model). It is worth noting that many funds and asset managers exit the business every year, without giving rise to systemic risk.
ALFI considers it more appropriate to focus on market activities, such as the use of high leverage and derivatives that may cause systemic risk to the financial system, rather than the investment fund’s size. The focus on fund size may yield a small number of funds and the systemic importance of them is questionable when compared to the size and impact of banks and insurers. If such funds are targeted and subject to additional controls, such as restrictions on sales during times of market volatility, limitations on investments in certain systemically important banks or insurers or holding of capital against such volatility, there is the possibility that the investors will simply transfer their investment to a less constrained fund or another financial product to meet their investment needs.
Full ALFI response
© ALFI - Association of the Luxembourg Fund Industry
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