EFAMA conference: Bill Gross and systemic risk

DominosDid the resignation of Bill Gross of Pimco and the subsequent huge outflow of client money provide the funds industry with a test for systemic risk?

Guy Sears, director of risk, compliance and legal at the UK's Investment Management Authority, seems to think so. He made it clear that, in his view, fund managers should not be considered globally systemic important financial institutions.

Sears chaired a panel at the European Fund and Asset Management Association annual investment forum last week, which asked if investment managers posed a systemic risk. The panel featured Natasha Cazenave, who is head of the asset management policy division at the AMF, the French financial regulator, and also a committee head at the International Organization of Securities Commissions (Iosco).

The Financial Stability Board (FSB) and Iosco are looking at the systemic importance of investment managers. Cazenave said the FSB is considering if funds are themselves, as entities, systemically risky, so the resignation of Gross, Pimco's former co-chief investment officer, was interesting.

"We are definitely looking at it closely because of Pimco, but it is too soon to comment."

The exercise wants to identify which, if any, funds might create extreme events.

An audience member, who noted that Pimco saw $50 billion (€40.1 billion) of outflows after Gross's resignation, said the event had demonstrated that contagion in funds does not happen. The audience member said the fund managed by Gross, the Total Return Fund, had contained highly liquid treasuries and other products and that derivatives were predominantly vanilla.

Another audience member questioned whether the Gross resignation was a real example of a systemic stress test. "Can we really rely on that story? There was no emergency."

Can the Pimco case be held up as a test for systemic risk?

What do you think? Please tweet us @fundseurope #Pimcocase

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