On Thursday, March 7, 2019, the Healthy Markets Association released a ground-breaking report on improving oversight of benchmark-linked investments.
Millions of investors have placed trillions of dollars into investment products that are linked to benchmarks for interest rates, foreign exchange rates, equities prices, and countless other reference points. These benchmark-linked investment products range from mutual funds that track the S&P 500 index to complex, customized swaps use by the world’s largest pension funds and companies.
Unfortunately, the benchmarks underpinning many of these products may be (1) subject to conflicts of interest, (2) susceptible to manipulation, and (3) insufficiently transparent to ensure their accuracy or integrity. Worse, the existing United States regulatory framework is ill-equipped to address the risks and conflicts of interest posed by benchmark-linked investing.
In its 47-page report, freely available via the company website, Healthy Markets explores these risks and offer a path forward for investors and regulators to mitigate the conflicts of interest and risks of these products, while maximizing the benefits for investors, markets, and the economy.
“Benchmark-linked investing can offer incredible opportunities for investors, but they also come with hidden risks,” said Chris Nagy, Director of Healthy Markets and co-author of the report. “This report shines a spotlight on those risks.”
“Buying a financial product that links your returns to a benchmark means that you are now dependent on the integrity and utility of that benchmark,” said Tyler Gellasch, Executive Director of Healthy Markets. “As benchmark-linked investing has taken off in recent years, it’s now time for investors and regulators to take a hard look at the governance, quality, methodology, and accountability of the benchmarks upon which so much of our economy now relies.”
Healthy Markets Association is an investor-focused not-for-profit organization dedicated to promoting data-driven reforms to market structure challenges. Our members, who range from a few billion to hundreds of billions of dollars in assets under management, have come together behind one basic principle: Informed investors and policymakers are essential for healthy capital markets.