Systemic risk : a focus on asset managers

Abstract

The main objective of this thesis is to examine whether asset managers can have systemic importance in the financial markets. This will be achieved by discussing recent trends which have affected the asset management industry in recent years and assessing whether such trends can be considered as being systemically relevant. The trends analysed are the growth and slight increase in concentration of the industry and the shift from active to passive management and the rise of ETFs. The analysis is conducted through a questionnaire with participants with substantial asset management experience and a data study. It was not possible to conduct empirical work in relation to this study, since no paper has yet empirically assessed the effects of asset managers on systemic risk. The study of systemic risk is a tricky subject given its dynamic nature. From this dissertation it was concluded that the asset management industry is still a low concentrated market, however, the biggest asset managers have grown substantially during the past years which can make them more systemically relevant. The size of today’s asset management industry is untested by a major negative event and this can be a worry in cases of liquidity shortfalls. Passive management has been growing at a fast pace, raising fears of increased correlation between index securities. The shift to passive management has given rise to the ETF market. Concerns have grown about the risks that ETFs can pose to the market, especially the liquidity shortfalls which can arise.