On July 26, 2022, William Birdthistle, Director of the SEC’s Division of Investment Management, delivered remarks at PLI: Investment Management 2022 in Washington, D.C.

Mr. Birdthistle opened by discussing the SEC’s tripartite mission—investor protection, capital formation, and the maintenance of fair, orderly and efficient markets. He emphasized the need to help investors better understand fund fees and opined that any expectation that investors should closely monitor complex fee arrangements and costs is not realistic. With respect to capital formation, he highlighted the benefits of proposed rules for private fund advisers that would prohibit certain activities that run contrary to the public interest and require additional disclosure and transparency. He noted that fund investors are not always aware of how funds vote portfolio shares and pointed to enhanced engagement through proxy voting as a potential avenue for increasing the voice of investors, as opposed to asset managers, in markets.

Mr. Birdthistle remarked on the cessation of the London Interbank Offered Rate (LIBOR). He noted the Division’s work to help prepare advisers and funds for the upcoming transition away from LIBOR on June 30, 2023 but stated that more work is needed in the area of operational readiness. For example, he stated that asset managers and their lawyers should be mindful of LIBOR disclosure obligations and any valuation risks arising from the transition to an alternative reference rate. In an effort to avoid significant disruption, he stated that Division staff will continue to assess the preparedness of advisers and funds through their participation in examinations and outreach efforts.

Mr. Birdthistle discussed the impact of the European Union’s Markets in Financial Instruments Directive (MiFID II) on the market for investment research in the United States and the European Union and the SEC staff’s noaction letters in response to the changes. Among other things, MiFID II, which came into effect in 2018, prohibits European asset managers from using “soft dollars” to purchase investment research from broker-dealers. He discussed the no-action letters issued by the SEC staff in response to MiFID II, including the staff’s position that it would not consider a broker-dealer that accepted compensation through certain arrangements required by MiFID II to be an investment adviser. He highlighted that this was a temporary position and not intended to be a permanent solution. Mr. Birdthistle stated that the Division staff does not intend to extend the temporary relief beyond its current expiration date on July 3, 2023 and does not expect to issue further assurances with respect to the status of broker-dealers accepting compensation under MiFID II arrangements. He also clarified that statements or positions in the no-action letters independent of the temporary adviser status position were not being rescinded.

Mr. Birdthistle concluded his remarks with a discussion on money market funds. He discussed the history of money market funds, including the growth of money market funds following the adoption of Regulation Q, the run on money market funds during the 2008 global financial crisis and the significant flows from prime money market funds into government money market funds in March and April 2020. He reflected on the high redemption rates experienced
over the March and April 2020 period and the potential impact gates and fees had on redemptions. He highlighted swing pricing, which is used by European funds, as one potential solution to addressing future liquidity crises and welcomed comments on the use of swing pricing in the recent money market fund proposal.

A transcript of Mr. Birdthistle’s remarks at PLI: Investment Management 2022 are available here.