SEC’s AMAC Discusses COVID-19 Impact, Outlines ESG, Private Investment Work Streams
May 29, 2020
In its second meeting since its formation, the SEC’s Asset Management Advisory Committee (AMAC) met on May 27 to discuss the effects of COVID-19 on the asset management industry and to review the work streams of its ESG and Private Investment Subcommittees.
Members of the ESG Subcommittee, headed by Michelle Beck of TIAA Financial Solutions, outlined the following work streams of the subcommittee:
- Is ESG About Values or Value?
- Assessing Performance of ESG Strategies
- Proxy Voting in ESG Strategies
- Issuer Disclosure of ESG Data
- What Role Should ESG Rating Systems and Benchmarks Play?
The subcommittee will review feedback from AMAC members on the work streams and then consider pros and cons of various actions in this area. The subcommittee is also aware of the Investor Advisory Committee’s work in this area. In his opening remarks, SEC Chairman Jay Clayton expressed skepticism about combining E, S, and G. He said that he has “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.” He requested engagement on this issue, “particularly from active portfolio managers with actual track records.”
Rama Subramaniam of GTS, head of the Private Investment Subcommittee, described the subcommittee’s guiding principle as “the best interest of Main Street investors,” which includes “balancing protections for the investor with opportunity and access to a wider range of investments.” This subcommittee has two work streams. The first is measuring full cycle returns from private investments, and members plan to survey related academic studies and industry data. The second work stream is understanding the current SEC exemptions and restrictions on private offerings. In this regard, the subcommittee plans to review SEC releases and the access framework in areas such as private equity, real estate, and private debt.
After the subcommittee presentations, three speakers provided their views (here, here, and here) on the impact of COVID-19 on the asset management industry – Sean Collins, Chief Economist of the Investment Company Institute; Marc Seidner, a Managing Director at PIMCO; and Ben Phillips, Principal at Deloitte Consulting LLP. The committee then took a deeper dive into COVID-19 issues, focusing on ETFs, money market funds, and operations. Speakers concentrated on what was going well and areas where further study is needed. There was agreement that the equity markets and circuit breakers have functioned as designed, firms’ business continuity plans have worked well, and regulators’ actions have helped calm markets. Many speakers compared the current situation to the 2008-2009 recession, observing that, compared to the earlier recession, there has been less use of Federal Reserve facilities. One area identified for further review is the functioning of the fixed income markets, including valuations and transparency.
Regarding ETFs, committee members felt that inclusion of bond ETFs in certain Federal Reserve facilities helped calm the bond markets. They suggested as an area for review situations in which ETFs’ market values were at a discount to their net asset values. On money market funds, members agreed that, while the 2008 crisis implicated credit, the recent crisis implicates liquidity. Another observation was that, while many of the 2014 money market fund regulatory reforms worked well, the requirement for a money market fund’s board to determine, once the fund’s weekly liquid assets fall below a 30 percent threshold, whether to impose a liquidity fee or redemption gate, has replaced “breaking the buck” as an area for investor concern. Some members believed that regulators should further review money market fund regulation to reduce the need for government intervention in the future.
Committee members also discussed a number of operational issues, including challenges with delivery of paper documents, and the need for the SEC to modernize its regulations regarding electronic delivery. The IAA strongly supports modernizing these regulations, and agrees with statements made at the meeting that the SEC can update these regulations while continuing to protect investors and accommodate investor preferences. Committee members noted that they have seen more investors recently select electronic delivery. Members also discussed employees working from home, and the need for temporary regulatory relief related to these work arrangements to be made more permanent.
In her opening remarks, Dalia Blass, Director of the SEC’s Division of Investment Management, emphasized that the Division is continuing its outreach and monitoring related to COVID-19. We encourage members to reach out to the IAA Legal Team to discuss ongoing challenges arising from the COVID-19 situation.
TAGS: AMAC, ESG, Private Funds, Private Offerings, COVID-19, Coronavirus, Money Market Funds, ETFs, Electronic Delivery, Jay Clayton, Dalia Blass