Large flows into passive investment strategies are not even “remotely close” to distorting capital markets, says Future Fund chief executive David Neal.
Delivering a portfolio update last week, Future Fund CEO David Neal played down suggestions that large flows into passive investment strategies could cause assets to become mispriced.
In theory, a preponderance of passively invested funds could limit the 'price discovery' process and ultimately lead to inefficient markets, Mr Neal said.
"It doesn't feel to me that we're remotely close to that position in terms of broad market index exposures," he said.
"There's a lot of activity [from active fund managers]. There are a lot of market players who are attempting to find mispricing still."
However, he did not rule out ETFs causing future shocks to specific market sectors.
"It's possible that ETF activity is in some places creating some risks when a lot of people all try and squeeze themselves out of an ETF that perhaps doesn't necessarily have particularly liquid things underlying it," Mr Neal said.
"There are some risks around those sorts of things, but in terms of broad index exposure across markets it doesn't feel to me to be something that we should worry about just yet."
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