An international representative body for Institutional Investors – what it might achieve

Since our firm’s establishment in 2005, we have been highlighting the need within the fixed income securities industry for an independent representative organisation for the Institutional Investor community. This is the conclusion of a recent presentation made to European regulators.

The function of such a body would be to assist investors to coordinate their efforts to ensure best practices in these complex markets and, in general, to identify deficiencies, as time goes on, in the development of new investment products and markets. The role of the global credit rating agencies should, in future be seen as an adjunct to, rather than a substitute for, the pro-active involvement of International Investors, supported by such a new body.

The primary initial functions of such a body might include:

• To create a forum for the analysis and discussion of, and to represent the common interests of its members on, developments in the international structured finance, securitisation and derivatives markets.
• To facilitate private and confidential discussion platforms for members to air concerns about, and share experiences of, particular securities issues.
• To facilitate the emergence of a coherent, consistent international voice for the “buy-side” in these markets.

And how it might come about?

Most, if not all, of the various interest groups in the global securitisation, structured finance and derivatives markets are represented by thriving representative bodies (ESF, ISDA, AIMA, ICMA etc). Those bodies came into being in each case as a result of the initiatives taken by those leading private institutions (i.e. originators of mortgages and other receivables, derivatives dealers, hedge funds, investment banks, etc.) that perceived the real need for a representative body in their respective industries. In each case,  primary purpose was (and remains) broadly to foster a market environment in which members could enhance revenue earning potential at the same time as minimising business risk. Those bodies thrive notwithstanding the fact that their individual members are in business competition with each other.

The main reason that a similar interest group has not evolved within the international community of institutional investors in the fixed-income markets is that that community is too diverse and disparate in nature to get such an initiative off the ground without outside prompting and assistance.

This is why the help and encouragement of national governments and regulators, and of those international bodies charged with designing the new architecture of international financial, securities and investment regulation, is necessary.

And the current circumstances of the global financial markets and the focus of governments and financial regulators on long-term safeguards may provide a unique opportunity to investigate the feasibility of such a project.

( May 2009 )