sustainable investment in uncertain times : the future of public sector asset management speech by l. federico signorini omfif roundtable for public sector asset managers london, 6 february 2020 in these remarks, i shall take the point of view of the central bank as an investor, rather than a monetary policy authority. my contribution may thus be seen as complementary to those of other speakers in this session. while profit maximising is not their ultimate objective, central banks do manage substantial funds and have a duty to manage them well, within the limits and for the purpose dictated by their institutional function. in the last few years, the investment profile of central banks has changed significantly because of the substantial expansion of their balance sheets, which in turn was due to the unprecedented scale and non - standard nature of monetary policy actions. as a result, the risks borne by central banks have increased, both quantitatively and qualitatively. many central banks have begun, or returned to, dealing with less traditional assets, markets and counterparties. this development has raised the profile of asset ( and liability ) management within central banks, and it has arguably made the management of official reserves and own funds more similar to that of diversified private funds, with a greater focus on controlling risks and enhancing returns. however, there are certain key constraints that central banks must respect. first, while reputation is relevant for private managers as well, it is absolutely essential for central banks to protect their public image and hence their credibility, integrity and independence. second, as they need to retain the ability to perform their mandates indefinitely and in all sorts of circumstances, central banks must take the long view and adopt an investment strategy that is robust to extreme events over an extended horizon. finally, two further constraints are generally applied by central banks because of their public nature : neutrality ( i. e. interfering as little as possible with market resource allocation, except insofar as monetary policy dictates ) ; and – a point that may be more rarely noticed – ‘ lightness of touch ’ in daily operations ( i. e. avoiding market disruption due to the sheer size of their trades ). let me start with a just a few words on the last topic. central banks, in particular those managing a large pool of assets, need to pay due attention to market conditions and adopt appropriate trading practices so as to minimise the impact of their trades and avoid generating unintended signalling effects. with this in mind, for instance, we at the bank of italy

- time restrictions that would impede or distort the operation of financial markets. this is good, and it should allay the fears of a return to the past. however there is a strong commitment “ to ensure that all financial markets, products and participants are regulated or subject to oversight as appropriate to their circumstances ”. the g20 further outlined the need to strengthen transparency and accountability, to promote integrity in financial markets and to reinforce international cooperation in the regulatory field, broadly endorsing the program and the division of labour agreed upon in this field by the managing director of the imf and the chairman of the fsf. the fsf, in the words of chairman draghi, is working in particular to ensure that financial systems would have more capital, less leverage and would be subject to more effective regulation. this would imply, inter alia, reducing the procyclicality of the regulatory framework and its reliance on “ selfregulation ” by market participants, which paves the way to “ regulatory capture ”. this is a welcome change from the attitude that allowed in the past a growing proportion of markets, products and participants to go unregulated on the grounds that “ they have no systemic impact ”. this is the attitude that brought to us the “ shadow banking system ” made up of unregulated sivs and conduits, distributing opaque structured products containing subprimes and other risky assets with the active marketing of unregulated rating agencies. obviously, the systemic impact of these g20 commitments will depend on the actual outcome of the negotiations underway in the relevant trade and regulatory bodies. turning, finally, to the anchor question i must say at the outset that this is the area where little progress has been made so far in official fora. the g20 declaration mentions the need to reform international financial institutions, but mostly to reflect more adequately “ changing economic weights in the world economy in order to increase their legitimacy and effectiveness ”. how can we be sure that these steps will ensure that a global crisis such as the present one will not happen again? pro - cyclicality is an inherent feature of all financial systems and it is likely that a mere rebalancing of power would not achieve significant results in the absence of effective supra - national mechanisms to promote stability - oriented macroeconomic policies at the national level, especially by systemically important countries. unfortunately, the g20 declaration has placed insufficient emphasis on measures against the perpetuation of