Norm Champ, the Director of the SEC’s Division of Investment Management (the “Division”), discussed, among other things, his views on the role of fund boards of directors during a speech on March 18, 2013 at the 2013 Mutual Funds and Investment Management Conference. According to Champ, the Division will seek to have “insightful in-person meetings” with fund directors, whom Champ sees as the “eyes and ears of fund investors.” Champ also noted that regulators such as the SEC rely on fund boards as gatekeepers of the fund industry.
According to Champ, the Division intends to ask fund directors “tough questions” regarding their roles with respect to investment funds. The issues identified by Champ that the Division will raise with fund directors include:
- understanding the areas fund directors believe they add value to the oversight of funds and conversely the areas in which directors believe oversight is more challenging (and relatedly whether fund directors are able to focus on the areas in which they add the most value);
- whether the responsibilities of fund directors are properly allocated;
- whether fund directors are able to ask the “tough questions[ ] and make difficult calls” with respect to the funds they oversee, such as with respect to the appropriateness of fees paid to advisers (including, e.g., fees paid to a sub-adviser responsible for day-to-day management of a fund versus the adviser whose role is to oversee such sub-adviser);
- whether fund directors are focusing on fees paid in connection with securities lending agent arrangements (especially if such agent is an affiliate of the fund the directors oversee);
- whether fund directors are focusing on issues that are specific to a particular fund (as opposed to consideration of issues applicable to a fund complex generally); and
- whether fund directors are overextended (including whether fund directors serve on too many boards).
According to Champ, while there are efficiencies associated with having the same directors serve as board members for multiple funds within a fund family, Champ questioned whether such arrangements can compromise fund directors’ oversight functions (and if so, at what point does that happen, Champ queried). According to Champ, in discussing such issues with fund directors, the Division will seek to “maximize the value of fund boards for fund investors.”
In addition to his discussion on fund boards, Champ also spoke about (i) the Division’s new Risk and Examinations Group, which will “conduct rigorous quantitative and qualitative financial analysis of the investment management industry,” (ii) his interest in obtaining input from the public and industry participants on regulatory initiatives and (iii) the Division’s need to collect additional data and analysis on mutual funds (noting that such data is now being collected with respect to private funds as a result of Form PF).