COULD asset managers pose a systemic risk to the economy? Some regulators, looking for the cause of the next crisis, worry that they might, particularly at times when markets are already volatile and liquidity ebbing. Fund-management firms, understandably, take the opposite view: unlike banks, they do not take risks with their own money and do not have much debt.
A new paper* suggests that big fund managers could have an outsize impact on the market. It does so by examining the impact of the merger of two asset managers in 2009: BlackRock and Barclays Global Investors (BGI). The deal created the biggest fund-management group in the world, looking after $2.7 trillion of assets at the time. Between them BlackRock and BGI had stakes in some 60% of listed global firms, by value.
The authors focus on the reactions of other investors to the merger. In theory, they could have piled into the shares jointly owned by BlackRock and BGI, viewing their stakes as a seal of approval from the world’s largest investor. But they did the opposite, rushing out of the stocks when the deal went through. The jointly owned shares underperformed: for those stocks where the increase in BlackRock ownership due to the merger was unusually high, risk-adjusted returns fell by 1% per month over the three months it took to consummate the deal.
The motivation for such sales, the...Continue reading
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