Institutional asset owners are generally a step or two removed from the direct impact of financial regulation.

Most U.S. public pensions, foundation, and endowments farm out money to investment managers, who must comply with tighter requirements pertaining to trade reporting, clearing, commissions, and multiple other operational areas. Asset owners’ trades are handled by brokers, exchanges and other trade venues, which have their own regulatory bars to clear.

But ultimately, regs hold direct implications for asset owners, as new rules can increase (decrease) the cost of managing money, which in turn decreases (increases) net investment returns.

In a broad sense, institutional asset owners support the ongoing finreg push as a way to reduce systemic risk and the chance of a repeat of the 2008-2009 global financial crisis, which cratered some portfolios by 30% or more. Several years ago industry standard-bearer CalPERS spoke out in favor of the Dodd-Frank Act, and pension plans maintain optimism.

“If there is more transparency in the investment industry, ultimately we benefit by having a better understanding of the fees we pay and the risks we take,” said Jonathan Grabel, chief investment officer of the $14.4 billion Public Employees Retirement Association of New Mexico.

To be sure, while market participants may support the aims of regulators, there is wariness regarding whether rulemakers in both the U.S. and Europe will go too far, and unnecessarily constraining the financial industry. This concern has become more pronounced as the regulatory  push moves beyond a half-decade in duration, with no clear end in sight.

For pensions, a concern is that regulation will squeeze the investment shops that don’t have the scale of the BlackRocks, Vanguards and Fidelitys of the world.

“Is too much regulation a bad thing? There may be some externality associated with the cost of regulation, if it results in an industry with only big players,” Grabel told Markets Media in an Oct. 28 interview.  “I do see the cost of reporting at the individual money-manager level may be hurting the smaller, more nimble managers that may produce better returns for us.”

“Potentially, we are not always congruent with our managers if they are so big that they are like financial ‘supermarkets’,” Grabel continued. “If managers are more focused on asset management fees than investment returns, that is an externality for us.”