Asset managers next ‘too-big-to-fail headache’

Are asset managers the next too-big-to-fail headache? The Bank of England’s Andy Haldane worries they could be too big. The risks sound similar to banking crises — yet need different answers.

Asset managers and banks are different beasts. Banks take credit risk on their balance sheet; managers leave risk with end investors. If management companies blow up, individual funds and investors may not be hurt. Even so, the way the industry is changing and growing creates risks.

Passive investing through indexes or exchange-traded funds is mushrooming, and managers are growing bigger and burrowing deeper into less liquid investments.