Q: You’ve secured some recent advocacy wins, such as influencing short selling regimes in the US and UK. How did MFA turn industry concerns into policy changes?
A: Representing fund manager members’ views to policymakers and stakeholders is a core part of our work to support fair, efficient, and transparent capital markets. In most cases, progress comes through ongoing dialogue and participation in consultations, where we present evidence to support adjustments to existing rules.
One example is the UK’s move to aggregate, anonymised net short position disclosure, a change we supported over two years. We showed the FCA that this model could encourage broader market participation and improve functioning in UK markets. We also engage directly with regulators when needed. In the UK, we raised concerns regarding the FCA’s proposed ‘name and shame’ approach to enforcement transparency, and the proposal was later withdrawn.
Q: The UK is moving ahead with reforms to short selling rules, partly following MFA’s campaign. What lessons should EU policymakers take from the UK approach? What risks arise if Brussels doesn’t act?
A: EU policymakers may want to consider the UK experience and how similar reforms might affect market competitiveness. Current EU disclosure rules are relatively heavy, which can deter participation and reduce liquidity.
Reduced incentives to short can also affect the functioning of long-side investment strategies by limiting capital flow to companies. Analysis from Oliver Wyman showed that UK markets subject to public disclosure requirements saw a 13% decline in trading volumes, while Copenhagen Economics found such disclosure can encourage herding, influence price movements, and increase volatility.
Aligning EU policy more closely with international approaches could help support activity in Europe’s alternative assets sector and potentially increase investment into European markets.
Q: Critics argue that short selling is destabilising or speculative. Why do you view it as supportive of market health and capital formation?
A: Short selling plays a role in market functioning by contributing to liquidity, price discovery and transparency.
It increases liquidity by expanding the supply of securities available to trade, narrowing spreads and lowering trading costs. It also contributes to price discovery by allowing investors who believe an asset is mispriced to express that view, helping prices reflect fundamentals and aiding capital allocation.
Short sellers have also identified fraud in notable cases such as Enron and Wirecard. This can strengthen overall market integrity by helping uncover misconduct and reinforcing confidence in the system’s ability to detect it.
“Short selling plays a role in market functioning by contributing to liquidity, price discovery and transparency.”
Q: Institutional investors such as pension funds face pressure to generate returns in a low-growth environment. How can alternative asset managers and the regulatory framework better support long-term savings systems?
A: Our members play a role in pension fund portfolios by providing diversification and access to a wider range of investment strategies.
We support regulations that facilitate these relationships and provide transparency, while being cautious about measures that could unnecessarily restrict investor access. Greater flexibility in asset allocation can also help pension funds invest in a wider set of illiquid assets. In the US, for example, pension plans allocate more than US$600 billion to hedge funds, supporting retirement outcomes for over 26 million workers.
Q: The Bank of England is considering reforms to the gilt repo market. What risks or opportunities do these pose for alternative asset managers?
A: Alternative asset managers participate actively in the gilt market and contribute to market functioning through price discovery and liquidity provision. We are supportive of well-designed reforms, including enhanced central clearing, where they can strengthen market resilience. But regulatory design and implementation need careful consideration to avoid potential unintended consequences such as constraints on liquidity or market access.
Q: With the EU pushing ahead with the Savings and Investments Union and growing competition from London and New York, where do you see risks of Europe falling behind? What role can alternative asset managers play?
A: The EU is at an important stage in shaping its capital markets. Reforms aimed at mobilising private savings, supporting innovation and reducing fragmentation will be central to progress.
Alternative asset managers already have a sizeable footprint in Europe: European investors provide around 20% of global capital for the sector, European pension funds invest more than €160 billion in it, and private credit funds provide over €350 billion to European businesses.
A regulatory framework that is proportionate and efficient will help maintain this role. Streamlining reporting requirements could reduce operational complexity while preserving useful regulatory data. This includes areas such as short selling, as well as potential options like a single reporting hub or single-sided reporting under MiFID.
The ongoing review of the securitisation framework will be an early indicator of the EU’s direction. Refining due-diligence requirements and clarifying the treatment of private transactions could support additional capital formation.
“Bank-style requirements could constrain the sector’s ability to provide finance to European companies at a time when diversified funding is needed.”
Q: What is the biggest policy or regulatory challenge for alternative asset managers in Europe over the next five years, and how is MFA preparing?
A: Scrutiny of non-bank financial intermediation is increasing, often with questions about private credit’s role in financial stability. Alternative asset managers are already subject to tailored regulatory frameworks, and it will be important that future rules reflect the sector’s actual risk profile. Bank-style requirements could constrain the sector’s ability to provide finance to European companies at a time when diversified funding is needed.
There is also a growing regulatory focus on data at both national and international levels, including from the FCA, Bank of England, IOSCO and ESMA. MFA is engaging with policymakers to encourage harmonised approaches, reduce low-value reporting burdens, and identify areas where better data could enhance oversight.
Regulators will also need to keep pace with market developments. Investor access to alternative investments and the tokenisation of securities are two areas likely to remain high on the agenda.
