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Remarks at Asset Management Advisory Committee Meeting

March 19, 2021

Good morning to you all and thank you Ed [Bernard]. It is always a pleasure to welcome the hard working volunteers of AMAC back to the Commission. I also want to thank Sarah ten Siethoff and the staff of the Division of Investment Management for their work in keeping AMAC’s wheels turning. In particular, I would like to thank Christian Broadbent, Jay Williamson, Walé Oriola, and Emily Rowland who are so instrumental in making these meetings happen.

We are now well into the New Year but in some respects, 2021 is looking a lot like 2020. We continue to interact with each other via Brady Bunch-like squares on our computer screens and hope that Zoom will accept our assertions that we are not robots – that said, my fire hydrant and crosswalk spotting skills have never been sharper. The challenges of remote workplaces and the other consequences of the COVID-related lockdown that asset managers face have not changed either since we last met in December. Despite these hurdles, asset managers have continued to serve their clients with a commendable professionalism and commitment.

Today’s meeting also continues the themes of last year’s meetings. I take nothing away from the work that the three subcommittees will be presenting and that the Committee will be discussing today, but I have begun to wonder whether AMAC is as broadly focused as it could be on the range of critical issues confronting asset managers.

With one or two exceptions, AMAC’s agenda over the past year – including today’s – has been dominated by just three issues: ESG, diversity and inclusion, and private investments. All important topics, and I very much appreciate your work on them. But when you speak to your co-workers, clients, and others in the industry, what are other topics of discussion? What else is causing concern among asset managers? What are they saying about issues such as managing their clients’ portfolios in a zero-rate environment; the promise and perils of new technology; the balance between client convenience and cybersecurity risks; challenges of returning to in-person work; the need for modernizing custody, cross-trading, and other Commission rules; implications of state privacy laws; renewed retail interest in trading individual stocks; a potential shortening of the settlement cycle; industry concentration; money market funds; digital assets; the SPAC trend; and equity and fixed income market structure? This list is certainly not exhaustive or offered in any particular order of priority, but the point is that we need your input on a whole range of issues.

As described on the SEC’s website, AMAC has an important role to play in assisting the Commission to identify “trends and developments affecting investors and market participants.” It is crucial, therefore, that the Committee embrace a wide variety of topics that we need to hear about as we formulate our regulatory and policy priorities. I hope that, as you discuss the Committee’s agenda for 2021 this afternoon, you will ensure that it is broad, yet manageable. I am confident that the creative minds that make up the Committee will come together to build on its impressive work and provide additional insights on a host of important matters that we have not yet explored.

I know that one of the reasons for the limited issue set is that you have opted for depth over breadth. I appreciate the care you are taking with difficult issues. On ESG, for example, you have brought in an excellent panel to continue last meeting’s discussion. The December ESG conversation unearthed an important tension between the fact that issuers already have to disclose material risks and the calls for special ESG disclosure requirements. To get to broad ESG disclosure mandates for issuers, we have to reimagine materiality. But reimagining materiality is the same as tossing it in favor of a more malleable new edition. Materiality has served us well, and undermining it to accommodate ESG will harm investors. I reiterate a point I have made before—I am happy to consider new SEC mandates for specific metrics that are likely to be material to every issuer in every industry. ESG standards, however, continue to be talked of in broad strokes that obfuscate the immaterial nature of many of the specific underlying disclosures.

Although I certainly understand the impetus for asking for mandated issuer disclosures, I urge the Committee to rethink the wisdom of recommending that we embark on a program to write standards for a set of issues nobody can define. They are not akin to accounting standards, which serve a clear, time-tested, universally understood objective. Having the SEC build a GAAP-like edifice around ESG standards would give investors a false sense of confidence in standards that are subjective, shifting, and sometimes even senseless.

Thank you for encouraging us to be frank with you, and I look forward to your frank discussion in return.

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