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Putting the Squeeze on the Buy-Side

The buy-side’s appetite for areas that were originally dominated by banks is kicking into high gear. According to Pricewaterhouse Coopers, the industry could be managing $100 trillion by 2020, which further paints a golden era for the industry ahead.

With growth in the industry starting to balloon, international regulators are reviewing asset managers, especially those classified as “large asset managers” (who have more than $100 billion in net assets), pose risks to the economy without more stringent regulations. While regulators are looking to tighten supervision on the industry, asset managers continue to remain steadfast in arguing that it would be inequitable to be treated like banks. For the buy-side, funds are less likely to require bailouts, or to require capital, all while being structured as less interlinked to each other.

These perspectives seem to have fallen on deaf ears. Currently, derivatives counterparties are seen by regulators worldwide as a detriment, poised to follow the same suit as failed banks, since counterparties enjoy termination rights which make it impossible for resolution authorities to monitor and regulate them.

It’s a continued balancing act, as regulators are pressing forward to urge firms to give up their termination rights “for the sake of financial stability,” or face regulatory pressure. A recent report from TABB Group announces that new regulations may require up to $2 trillion in collateral for swaps. As we approach the half year mark of 2014, various new risk tools that the buy-side will ultimately rely on will come under scrutiny. The innovation and the regulations that mold them will be two-fold: methodologies driven by continued industry pressures and remnant consequences of Dodd Frank and the reliance on innovative technology that will help manage collateral and systemic risk.

About the author

Nik Venema's picture

Nik Venema

Communications Manager, FINCAD

Nik Venema weaves FINCAD's written and visual narrative across its suite of fast, accurate, flexible, transparent, and holistic valuation and risk solutions. Prior to this, Nik worked in Quantitative R&D at FINCAD as a Technical Writer and Financial Engineer. Nik holds an undergraduate degree in Finance from the University of the Fraser Valley and an M.Sc. in Finance from Simon Fraser University. Addtionally, Nik is an Instructor of Financial Engineering and Risk Management in the University of the Fraser Valley.


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