Chairman Clayton Speaks to SEC’s Asset Management Advisory Committee

I look forward to hearing the Committee’s insights into the effects of the pandemic on the asset management industry and, in particular, our long-term Main Street investors.[1]  An essential component of our national response to, and recovery from, COVID-19 will be the continuing, orderly operation of our markets and the continued flows of capital and credit throughout our economy.  The asset management industry has a pivotal role to play in both orderly market operation and the generation and absorption of capital flows.  Investment funds and advisers are an important link between these market realities and the interests of our long-term Main Street investors.  As the effects of COVID-19 and our societal response unfold, it is important that we discuss these matters in real time and with clear heads.

The Commission’s general approach to the challenges presented by COVID-19 has been premised on putting health and safety first as we strive to fulfill our mandates under modified operating requirements and stressed economic conditions and thereby give the health experts time to develop a better understanding of the disease and how best to respond.[2]  As always, investor protection and market integrity have remained front of mind, as this whole-of-society, dynamic effort proceeds.

During the past several months, the Commission and its staff have been monitoring the effects of COVID-19 and our unprecedented societal response, and, in particular, we have been assisting market participants in their efforts to continue their operations.  For example, our Division of Investment Management staff have spent considerable time monitoring and engaging with the asset management industry, particularly funds and investment advisers with material exposures in markets and asset classes that have been most affected by recent events.  Staff have sought to address issues raised as part of that monitoring and outreach.[3]  Where appropriate, we have provided industry participants with targeted, conditional, and temporary exemptive relief.[4]  Our intent has been to enable participants affected by COVID-19, including funds and advisers, to meet the full substance of their regulatory obligations and the expectations of their investors, while recognizing that they may face temporary operational disruptions.

Throughout these times, our staff have been actively working with our domestic regulatory colleagues, particularly at the Treasury Department, the Federal Reserve Board (Board), and the Federal Reserve Bank of New York (FRBNY), as we have considered and implemented regulatory responses.  These collaborations have expedited action and enhanced the effectiveness of various government responses to the economic and market impacts of COVID-19.

Going forward, we will continue to monitor the effects of our responses to COVID-19 as they evolve, and we will consider modifying, supplementing, and withdrawing relief and guidance as appropriate.[5]  Today’s discussions will provide valuable insight to the Commission.

Here, I will take a step back and note two key questions we ask ourselves: First, how can we improve? And, second, how do we want participation and representation in our markets to evolve, at all levels—including with respect to investors, financial services companies, regulators, and others?  In my view, a key part of the answer to both questions is:  Expanding access and opportunity to our Main Street investors, on a basis consistent with the opportunities available to institutional investors, while maintaining our leadership in investor protection.

On the question of improvement, I note that despite this difficult time, the Division of Investment Management continues its work to modernize the regulatory framework for investment funds and advisers.  Their work is expanding access to and choice among investment opportunities while preserving and enhancing investor protection.  In March, the Commission simplified and streamlined investor-facing disclosures about variable annuities and variable life insurance products.[6]  Then, in April, we adopted reforms to modernize the securities registration, offering, and communication processes for business development companies and registered closed-end funds.[7]  In the coming months, the Commission expects to make progress on other items on our regulatory agenda that will continue these modernization efforts.

As we move forward, it remains incumbent upon the Commission to hear from those with hands on experience and expertise from outside our building—today, our virtual building.  Feedback from this Committee will no doubt help us understand better where our regulatory framework is working and where challenges remain.

Turning to today’s discussion specifically, I look forward to hearing from the Committee’s recently-formed subcommittees focused on private investments and on environmental, social, and governance (or, “ESG”) issues.  I have spoken at length on issues in both areas.[8]  I believe I have made it clear that, while I believe that in many cases one or more “E” issues, “S” issues, or “G” issues are material to an investment decision, I have not seen circumstances where combining an analysis of E, S and G together, across a broad range of companies, for example with a “rating” or “score,” particularly a single rating or score, would facilitate meaningful investment analysis that was not significantly over-inclusive and imprecise.  I have requested engagement on this topic, particularly from active portfolio managers with actual track records, and I greatly appreciate your efforts to inform the Commission in this area.

On the second question of participation and representation in our markets, a critical component of this discussion is diversity and inclusion, and I am glad that Ed [Bernard] will speak to your efforts regarding diversity, inclusion, and opportunity.  As I noted in my remarks at your inaugural meeting, opportunities to participate in the investment management industry are distributed much more narrowly than they should be.  I look forward to seeing how your work will inform the Commission as we seek to expand opportunities to participate in the investment management industry.  I look forward to the AMAC’s continued contributions to our collective efforts.

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