Commissioner Campos Speaks on Mutual Fund Director Issues (MF)

2.28.2007 SEC Commissioner Roel C. Campos spoke in Coral Gables, Florida at the Mutual Fund Directors Forum First Annual Directors Institute. He discussed recent developments impacting directors and he noted the SEC is seeking public comment on two papers prepared by the SEC's Office of Economic Analysis relating to the costs of controversial proposals that would require the chairman and 75% of the directors of mutual fund boards to be independent from management. Commissioner Campos stated that most of the data gathered so far supported his view that the independent chair and 75% board independence provisions had not imposed great expense and that the rule has been implemented widely across the industry, with generally very positive results.

He next spoke about mutual fund activism, stating that funds may do well to seriously consider the power of effective shareholder activism. Rather than automatically voting with its feet any time a fund becomes unhappy with the current corporate structure or business strategy, it may be worthwhile for a fund to seriously assess the costs and benefits of using its significant leverage to generate value through management or other business changes.

Commissioner Campos also spoke on mutual funds versus hedge funds and funds of hedge funds. With respect to the latter topic, he addressed the issue of whether fund of hedge funds may be too risky or unsuitable for the average investor. He stated that this comment simply misses the mark. The SEC has never been, and is not in the business of, eliminating investment risk. Rather, the SEC protects investors and their investments by regulating fund disclosures, conflicts of interest, and governance. The SEC has always held that the determining appropriate investment risk and investment suitability with respect to a particular product should be made by the market and professionals and investors that operate in that space, not by the SEC.