In a stinging letter to Treasury Secretary Jacob J. Lew, five Senators criticized the study by the Office of Financial Research (OFR), Asset Management and Financial Stability, alleging that the study contained “troubling errors” that call into question its legitimacy. 

The OFR’s controversial study, prepared at the request of the Financial Stability Oversight Council (FSOC), suggests that some asset management activities “could create vulnerabilities” that may justify designation of asset managers as systemically important financial institutions (SIFI).

“The OFR Study mischaracterizes the asset management industry and the risks asset managers pose, makes speculative assertions with little or no empirical evidence, and in some places, predicates claims on misused or faulty information,” the Senators wrote in the January 23, 2014 letter.  They also cited a lack of transparency and accountability to explain the “alarming dearth of accurate data” and other information used to support the study’s conclusions.

The Senators argued that asset managers function primarily as agents that manage money as fiduciaries, subject to specific guidelines, and that the asset managers do not assume the financial risks themselves.  It does not follow, the Senators suggest, that advisers themselves would experience the type of financial distress that can affect banks and “proprietary risk-takers,” let alone threaten the U.S. financial system.

The study also fails to appreciate the extensive existing regulation of investment management activities, the Senators said.

Moreover, the Senators cited numerous factual errors and mischaracterizations that “raise serious concerns not only about the legitimacy of this study, but also about whether OFR is capable of fulfilling its mission to provide independent and sophisticated analytical support to the FSOC and the member agencies.”

The Senators noted that the “bank-centric prudential standards” that flow from SIFI designation are “ill-suited and unnecessary for funds and asset managers, which do not present the same type or scale of risks to the financial system” that banks present.

The September 2013 OFR study raised industry eyebrows when it concluded that some investment management activities “could create vulnerabilities” in the financial system, and the failure of a large asset management firm “could be a source of risk.”

The five Senators who were signatories of the letter were Democrats Claire McCaskill of Missouri and Thomas Carper of Delaware, and Republicans Mark Kirk of Illinois, Patrick Toomey of Pennsylvania and Jerry Moran of Kansas.