MFA submitted a comment letter to the European Commission in response to the Targeted Consultation Document: Assessing the Adequacy of Macroprudential Policies for Non-Bank Financial Intermediation.
In the letter, MFA commented that alternative investment funds (AIFs) do not pose a financial stability risk and further macroprudential policies targeted at private funds are not warranted. Rather:
- AIFs are investment vehicles for institutional investors, not funded by depositor assets or backed by government guarantees.
- Private credit funds and AIFs do not pose financial stability risks since assets come from investors, not depositors.
- Liquidity risk is minimal in private funds because contractual redemption rights align with asset liquidity, eliminating “run risk.”
- AIF leverage is used primarily for hedging, not amplification, and does not pose systemic risks despite oversimplified metrics suggesting otherwise.
- AIFs support the European economy by diversifying funding sources, providing working capital, and aiding company growth.
- AIFs enhance market efficiency through active participation and act as “buyers of last resort” during stress, aiding in restructurings.
- AIFs and dealer counterparties and the central counterparties (CCPs) employ robust margin risk management practices, but MFA notes a need for greater transparency in CCP margin models.
- AIF-bank relationships are not interconnected enough to pose financial stability risks.
- Over 1,000 funds close yearly without systemic impact, while new funds continue to launch. The failure of a private fund has not affected the real economy or created stability or macroprudential risks.
- MFA supports enhanced information sharing among authorities to enable more coordinated responses to addressing any potential financial stability risks.
