Statement Summary
The Third Annual Conference on Emerging Trends in Asset Management discusses the evolution of asset management regulation from the ’40 Acts to future innovations. Panels will cover historical context and recent developments, emphasizing the importance of a flexible regulatory framework. The conference highlights the need for increased retail access to private markets, proposing revisions to the ‘accredited investor’ definition. It also addresses the growing demand for digital assets, with discussions on compliance and custody for crypto assets. The conference aims to support product innovation in the asset management sector, ensuring investor education and access to diverse investment options while keeping the regulatory environment nimble.
Original Statement
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.
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.
Expanding Retail Access and Innovation
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. 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.
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. Neither the statute nor Commission rules require such limitations.
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. A standardized approach for such products could ease the burden for the industry and the SEC staff. Asset managers are also creating new products under the ’40 Act.
Addressing Challenges and Opportunities
Additional guidance could open the door to enhanced investor choice and increased portfolio diversification. The Commission is working on providing clarity for investment advisers and investment companies. More options for crypto asset custody may be coming following the rescission of Staff Accounting Bulletin No. 121 and clarifying statements made by federal banking regulators.
The third panel deals with product proliferation, a testament to the creativity of the asset management industry and the flexibility of the governing statutes. 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.
I look forward to seeing asset managers continue to innovate to serve investor needs. I hope that the SEC will commit itself to applying 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.
