A Young Old: Remarks At The Third Annual Conference On Emerging Trends In Asset Management, SEC Commissioner Hester M. Peirce, Washington D.C., June 5, 2025

Thank you, Natasha [Vij Greiner]. Good morning and welcome to the Third Annual Conference on Emerging Trends in Asset Management. Before I begin, I must remind you that my views are my own as a Commissioner and not necessarily those of the SEC or my fellow Commissioners.

Today’s four panels take us on a tour from the beginning of the ’40 Acts up to the most recent developments in asset management, and on to the developments likely to come in the near future. These panels are in keeping with the asset management industry, which is an iterative one in which new developments are rooted in the old. I am looking forward particularly to hearing from our “Forever Young” panel of former IM Directors who will reminisce on 85 years of the Investment Company and Investment Advisers Acts.

Thinking back to my arrival at the Division of Investment Management as a wide-eyed staff attorney 25 years ago makes me feel anything but young. But happy memories linger from my four years in the Division: Immersing myself in Division history with the well-worn green binder “bibles,” wrestling through current issues in a rulemaking, or imagining the future of asset management through the eyes of the red book. My colleagues, of course, were the highlight of that experience. Paul Roye as Division Director, Hunter Jones as remarkably patient supervisor, Bob Plaze as master rule-drafter, Martha Peterson as consummate mentor, and countless colleagues who only recently left the staff, including: Bill Middlebrooks, Beckie Marquigny, Chris Chow, Penelope Saltzman, Jennifer McHugh, Jennifer Sawin, Janet Grossnickle, and Nadya Roytblat, to name a few. These and other members of the Division staff poured themselves into administering the statutory framework within which the asset management industry has flourished.

Although I am not feeling it personally, the first panel’s “Forever Young” title is an apt reminder that the regulatory framework must retain nimbleness and flexibility even though these characteristics typically wane with age. As the panel embodies, however, the wisdom of the past should guide our exercise of that flexibility. The asset management industry is in the midst of an age of innovation, a topic which will occupy the last three panels. Continued product proliferation, increased retail access to private markets, and tokenization will expand the menu of investment options available to investors. Accompanying that expansion should be education, including the innovative use of new technological tools to educate investors and their financial professionals about innovative product offerings.

For the sake of portfolio diversification, retail investors need access to a broad range of investment opportunities. The breadth of the public markets, where retail investors do most of their investing, has suffered as the number of listed companies has declined,[1] companies wait longer to attempt an IPO, and several large companies dominate the public market indices. The Commission should work on reforming public company regulation to help address this decline. But some asset classes are not fit for the public markets. Accordingly, retail investors and the financial professionals that serve them also are looking for additional diversification in the private markets.

Commission rules and regulations along with Commission staff positions have contributed to keeping retail investors out of the private markets. We should consider how to amend the “accredited investor” definition in the Commission’s rules so that more people are eligible to invest in the private markets. In August 2020, the Commission supplemented slightly the existing net income and wealth categories for qualifying natural persons, a change the Commission admitted was marginal.[2] I would like to see more meaningful expansions as would many retail investors who resent being cut off from an increasingly large segment of the market. The Commission staff can take other steps at once to allow retail investors greater access to private markets. For example, as Chairman Atkins recently noted, since 2002, Commission staff has taken the position that closed-end funds investing 15% or more of their assets in private funds should impose a minimum initial investment requirement of $25,000 and restrict sales to investors that meet the accredited investor standard.[3] Neither the statute nor Commission rules require such limitations. Removing them would allow retail investors greater access to private investments through a closed-end fund wrapper with the benefit of professional management. I support the Chairman’s directive that the staff address this situation, including by ensuring that funds are making adequate disclosure regarding conflicts of interest, illiquidity, and fees for closed-end funds that trade on exchanges. We also should work with fund sponsors that want to experiment with interval funds.

Some retail investors also want to add digital assets to their investment portfolios. Until recently, the Commission mostly stymied their efforts to do so through convenient and cost‑efficient securities products. Some ’40 Act funds afforded investors indirect exposure to crypto assets, but only when pushed by the courts did the Commission greenlight the trading of spot bitcoin (and later spot ether) exchange-traded products under the 1933 Act. The Trading and Markets staff is working diligently through many applications to list a whole range of digital asset ETPs. A standardized approach for such ETPs could ease the burden for the industry and the SEC staff. Asset managers are also creating new products under the ’40 Act. Just as a reminder a fund that invests primarily in spot crypto assets that are not securities cannot register as an investment company under the ’40 Act.

Additional guidance could open the door to enhanced investor choice and increased portfolio diversification for investors. The Commission is working, for example, on providing clarity for investment advisers and investment companies. One area in which there is a lack of clarity is how investment advisers and investment companies can hold digital assets in compliance with the current Commission custody requirements. One issue causing significant uncertainty is whether using state-‑chartered limited purpose trusts as a custodian of crypto assets would be consistent with the custody requirements of the Investment Company Act and Investment Advisers Act, and particularly whether they meet the definition of a bank provided in both Acts. More options for crypto asset custody may be coming following the rescission of Staff Accounting Bulletin No. 121[4] and clarifying statements made by federal banking regulators, including the OCC.[5] I hope that the staff of the Division of Investment Management can clarify how funds and advisers can treat a state trust as a bank with respect to the custody of crypto assets. More permanent clarity about how to apply the custody provisions to digital assets requires a deeper look at whether the custody requirements should continue to be based solely on qualified custodian status rather than on principles and qualitative criteria that may better ensure the safe custody of crypto assets. The Commission also should address questions as to whether registered investment companies may obtain exposure to crypto assets through investments that do not trade on a U.S.-regulated exchange and the tokenization of securities issued by registered investment companies.

The third panel deals with product proliferation, a testament to the creativity of the asset management industry and the flexibility of the governing statutes. The growth in and variety of exchange-traded funds is remarkable. The breadth of offerings serves a wide diversity of investor needs and often does so very cost effectively. Some of these products are complex and not fit for every client portfolio. Some of these products are designed not to be held for more than a day. They are tools for managing risk and volatility, enhancing returns, and limiting loss. If used incorrectly, they can have the opposite effects. The staff of the Commission, which is not a merit regulator, works hard with registrants to get the disclosures right for these products. Given the importance of understanding how these products work, I would like the Commission to consider whether overly conservative regulatory limits on marketing funds serve inadvertently to inhibit educational efforts by fund sponsors for financial professionals and investors.[6]

I look forward to seeing asset managers continue to innovate to serve investor needs. I hope that the SEC will commit itself to apply the many years of experience we have accrued with the flexibility necessary to accommodate innovation by incumbents and new entrants to the industry. May the rest of the conference help you to gain wisdom from industry and regulatory veterans, while staying forever young.