The International Monetary Fund says pension industry regulators may have to swing into action in the event of a pandemic of avian flu. 

They might have to exercise “temporary forbearance” as markets tumble, the IMF argues its latest Global Financial Stability Report. 

“An avian flue pandemic could affect the global financial system through 1) operational disruption caused by a sharp increase in worker absenteeism in the financial industry and 2) market disruption and changes in capital flows resulting from an increase in risk aversion,” the IMF states in the 195-page report. 

It adds: “To contain asset price deflation, regulators, including those regulating the insurance and pension industries, may have to consider temporary forbearance where prudential limits are breached by an initial decline in asset prices.” 

The report draws on a series of informal discussions with banks, securities firms, asset management companies, hedge funds, insurers, pension funds, exchanges, and credit rating agencies, as well as regulatory authorities and academic researchers. 

It also noted that pension funds were becoming more important in the emerging market sovereign debt market. 

It said the investor base “is shifting from highly active short-term traders toward more strategic and buy-and-hold investors”. 

And it pointed out that 2005 saw an “important expansion” of mature market strategic investors such as pension funds, insurers, corporations, and trusts in emerging market external debt. 

Inflows reached around $14bn, up some 40% on 2004. 

This is borne out by merging markets firm Ashmore Investment Management, which has just reached $20bn in assets under management. 

It said: “Assets continue to grow, with the bulk of clients being institutional investors making strategic investments to emerging debt from within fixed income. “Pension funds are the largest group of clients, but Ashmore also has substantial insurance, corporate, bank and central bank clients.”