Washington’s Worst Mistake of 2014? Veteran regulators warn against making asset managers too big to fail.

December 20, 2013 Leave a comment

Washington’s Worst Mistake of 2014?

Veteran regulators warn against making asset managers too big to fail.

Dec. 16, 2013 7:19 p.m. ET

Some consequences of government action remain largely unforeseen until a moment of crisis. That will not be the case if Washington regulators forge ahead on a misguided attempt to treat every large financial firm like a bank.An experienced and bipartisan group of former regulators is calling it misguided right now.In a nearby letter, former senior officials who oversaw banking, futures and securities markets note the “flawed analysis” and “fundamental misconceptions” contained in a recent report on asset managers by the Treasury Department’s Office of Financial Research.

The report, requested by the federal Financial Stability Oversight Council, is widely viewed as a first step toward applying bank regulation to large managers of mutual funds and hedge funds. In today’s letter, the veteran regulators explain why restraints that may be appropriate for bankers that play with taxpayer money are antithetical to vibrant capital markets.

For example, a bank examiner should naturally look skeptically at a federally insured institution that is “reaching for yield.” But finding a cash-generating asset at a low price is the essence of investing and essential to wealth creation. As the former regulators write, “Investors of all kinds, including asset managers who invest their customers’ money, necessarily seek to ‘buy low and sell high.’ The federal government cannot—and should not—attempt to influence investors’ inclinations whether, when and why to buy or sell securities.”

The regulators also note that the new federal stability council, which is chaired by the Treasury Secretary and is a creature of Dodd-Frank, suffers from a disturbing lack of transparency and flawed governance. These are problems Congress should address.

But in the meantime the council can best serve the country by resisting the urge to expand the taxpayer safety net. The council’s bank regulators have enough to do without trying to remove risk from investing.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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