IM Division Director Discusses E-Delivery, Increasing Public Access to Private Markets
August 11, 2020
Dalia Blass, Director of the SEC’s Division of Investment Management, recently gave a speech in which she focused on key past and future developments, and changes within the Division. She began by discussing the work of the Division related to COVID-19, and how the Division’s Analytics Office that was created after the 2008 financial crisis greatly improved the Division’s data handling capabilities. Regarding whether significant policy changes should be made as a result of recent events, Blass focused on fund liquidity and operational challenges. On fund liquidity, Blass invited feedback from fund managers on a number of issues, including stress tests and how useful the liquidity classification information has been to risk and compliance officers. She also asked whether liquidity tools such as swing pricing and redemption fees have been underutilized.
Operational Challenges: Blass discussed two areas of operational challenges where potential relief may be appropriate, electronic delivery and the in-person fund board meeting requirement. With respect to electronic delivery, Blass said “it is time to reconsider our approach to shareholder and client communications” and that the SEC “should consider guidance that treats physical and electronic delivery as equals rather than measuring delivery against a paper standard.” In cases where an investor has not expressed a preference, Blass asked if funds and advisers could be allowed to communicate using electronic contact information.
The IAA has long advocated that electronic delivery of required disclosures should be the default framework for investment advisers. If you would like to assist us in formulating our recommendations to the SEC or otherwise provide feedback, please contact IAA Associate General Counsel Sanjay Lamba at sanjay.lamba@investmentadviser.org.
The other operational challenge that Blass discussed was the requirement for in-person fund board meetings. During the pandemic, the IAA has advocated on behalf of our members for relief from the in-person fund board meeting requirement, and Blass noted that “a number of groups have expressed interest in extending the [exemptive] relief” that the SEC has already provided. Blass asked for feedback on these meetings, and any conditions that should be required in connection with more permanent exemptive relief.
Rulemakings: Blass listed the many rulemaking projects that the Division has worked on, including the recent proposal to amend the Form 13F filer threshold from $100 million to $3.5 billion. The IAA supports this increase and plans to comment on the proposal. Blass described the proposal as “part of the staff’s retrospective review of rules that have not changed in decades to evaluate whether they are functioning as intended.” As for future rulemakings, Blass said that the Division staff plans to make recommendations on all outstanding proposals, including adviser advertising and solicitation, fund of funds arrangements, derivatives, and fund valuation. They are also working on disclosure initiatives, including a streamlined fund shareholder report.
Enhancing Public Access to Private Markets: Blass discussed an initiative to enhance public access to private markets, and two potential registered funds structures to provide that access. This first is target date funds that could invest in private markets to diversify risk and potentially enhance portfolio returns. She suggested capping private investments to 15 percent of the fund’s portfolio. The other option she discussed was closed-end funds of private funds. In the past, these offerings have been limited to accredited investors because Division staff has raised investor protection concerns about offering them to retail investors. She said the staff is re-examining this position, and she raised a number of questions on which the staff would like feedback, including what types of advisory compensation arrangements “would result in the most optimal alignment of economic interests between Main Street investors and the fund adviser?”
Blass concluded by discussing changes in the Division, including a new Business Solutions and Technology Office, and an IM Liaison Office which will include the current enforcement liaison group and an expansion of policy and legal support to OCIE. She also discussed the work of the Asset Management Advisory Committee (AMAC) and thanked the AMAC chairman and members for their work.
See Speech: PLI Investment Management Institute (July 28, 2020).
TAGS: Advertising Rule, AMAC, Coronavirus, COVID-19, Dalia Blass, Electronic Delivery, Private Funds, SEC Investment Management