ECB Issues a Partial Mea Culpa in Wake of Woodford and H2O
The central bank acknowledges that its policies are spurring investors to load up on riskier securities.
In a rare bout of introspection, the European Central Bank has conceded that it’s partly to blame for creating the landscape that led to the misadventures in illiquidity that undid Neil Woodford and prompted investors to pull billions of dollars out of GAM Holding AG and H2O Asset Management. It’s right to be worried about asset managers stocking up on hard-to-trade assets. But people buy them as an alternative to the paltry returns you get from government bond yields, and that backdrop isn’t likely to change anytime soon.
In its latest Financial Stability Review published this week, the ECB acknowledges that the negative interest rates and bond-buying program it’s using to keep the economy afloat are driving fund managers to chase yield by loading up on riskier securities.