I’d like to thank the Financial Times for putting on this event and inviting me today. As is customary, I will note my views are my own, and I’m not speaking on behalf of the Commission or the SEC staff.
As this event is about the future of asset management, I thought it might be worthwhile to start with its history. I think we can learn a lot about the future of this important field by looking to its past.
The first fully diversified managed fund came about in the late 19th century in Britain, and mutual funds made their way to the U.S. in the 1920s.[1]
These funds had their fair share of problems over those early decades, particularly during the Great Depression. This led to the establishment of two foundational laws in 1940: the Investment Company Act and the Investment Advisers Act.
Today, more than 80 years later, the SEC oversees about 14,000 registered investment advisers with more than 48 million clients and almost $112 trillion in regulatory assets under management.[2]
Within this field, there has been significant growth in the size and number of private funds, in particular private equity and venture capital funds. The number of private equity funds has increased by 58 percent over the last five years; the number of VC funds, 110 percent.
The asset management field not only is growing; it is evolving. SEC staff are seeing new strategies, structures, and business practices. Technology is rapidly changing. This trend not only creates new opportunities, but also risks for markets and investors. The SEC must grow and evolve with the industry.
With these trends in mind, we have several projects at the SEC with respect to the asset management space.
First, fund disclosures. Today, we held an open Commission meeting to vote on enhancing the proxy voting disclosures that registered funds provide to shareholders. I was pleased to support those amendments.
The second area is digital engagement practices (DEPs). Today, unlike never before, asset managers — both incumbents and fintech startups — can tailor marketing and products to individual investors, using predictive data analytics and other DEPs.
In the case of robo-advisers or investment advisers, I wonder what they are doing within the predictive data analytics algorithms — if, statistically speaking, they are maximizing for our returns as investors, or, say, the revenues of the platforms. Further, to the extent that they’re maximizing revenues or doing a bit of both, how do we address the potential conflicts of interests that arise?
The next item has to do with the private funds. I’ve asked staff for recommendations for consideration of enhanced reporting and disclosure through Form PF or other reforms.
The fourth project has to do with fund naming. We’ve seen a growing number of funds market themselves as “green,” “sustainable,” “low-carbon,” and so on. I’ve directed staff to consider recommendations about whether funds should disclose the criteria and underlying data they use to make these claims.
The next work stream has to do with money market funds and open-end funds, and how we can continue to make those funds more resilient, learning from the Covid-related market events of March 2020.
The final area has to do with investment vehicles providing exposure to crypto assets. Earlier this year, a number of open-end mutual funds launched that invested in Chicago Mercantile Exchange (CME)-traded bitcoin futures.
Subsequently, we’ve started to see filings under the Investment Company Act with regard to exchange-traded funds (ETFs) seeking to invest in CME-traded bitcoin futures. When combined with the other federal securities laws, the ’40 Act provides significant investor protections for mutual funds and ETFs. I look forward to staff’s review of such filings.
Hopefully, that provides some context about our work on asset management. Thank you and I look forward to your questions.
[1] See, for example, Elaine Hutson: “The early managed fund industry: investment trusts in 19th century Britain” (Sept. 2003), available at https://www.ucd.ie/t4cms/HUTSON_2004_HISTORY.pdf.
[2] Using data from Form ADV.
