Funds Actively Seek Companies’ Sound Management

By Paul Schott Stevens

July 3, 2017

In their muddled and inconsistent arguments, the authors of “Index Funds Are Great for Investors, Risky for Corporate Governance” (op-ed, June 22) rely on unfounded assertions while ignoring clear legal requirements placed on registered funds, their boards, and their advisers.

Contrary to the authors’ claims, all funds—regardless of their investment strategy—have strong incentives to maximize the value of their portfolio by ensuring that the companies they own are well-managed and soundly governed. The board of a mutual fund or exchange-traded fund, as part of its overall fiduciary duty, oversees proxy voting to ensure that proxy votes are cast consistent with the best interests of the fund and without regard to the fund adviser’s other business concerns. What takes precedence is the interests of the fund and, by extension, the retirement savers and other individuals who own it. These long-term investors may or may not share the priorities of hedge fund activists.

Fund advisers work hard to ensure that their votes are well-informed and advance good governance. Unlike hedge funds and other investors, registered funds are required by law to disclose publicly their proxy votes, as well as the policies and procedures used to determine those votes. Proposals to force fund advisers to follow blindly the activists’ lead—or else not vote at all—would only harm sound corporate governance.

Paul Schott Stevens
President and CEO
Investment Company Institute
Washington, DC

TOPICS: Exchange-Traded Funds Fund Governance Fund Regulation Index Fund Mutual Fund Shareholder

Education, Outreach, Advocacy: A Big 2016 for IDC and Fund Independent Directors

By Amy B. R. Lancellotta

January 17, 2017

The Independent Directors Council (IDC) just wrapped up another year of vigorous support for the fund director community—educating directors, bringing them together to share ideas and experiences, and advocating on their behalf in policy debates. This brief post, adapted from IDC’s 2016 Annual Review, highlights some of IDC’s more notable work over the course of the year.

It’s Time: SEC Proposals Show the Need to Reexamine the Role of Fund Boards

By Amy B. R. Lancellotta

July 7, 2016

The proper role for fund independent directors—the role where they are best-positioned to represent shareholder interests—is to oversee the work of fund management. The sharp distinction between directors’ oversight role and management’s on-the-ground, day-to-day responsibilities has been a major factor in the modern fund industry’s 75-plus years of success.

Liquidity Risk Management Must Be Done Right

By Paul Schott Stevens

January 15, 2016

The following ICI Viewpoints is a lightly edited version of a letter that ICI President and CEO Paul Schott Stevens sent to U.S. Securities and Exchange Commission (SEC) Chair Mary Jo White, as part of the Institute’s overall response to the SEC’s liquidity risk management proposal.

How the SEC’s Six-Bucket Approach Could Provide a False Picture of Liquidity

By Brian Reid

January 14, 2016

As I explained in a previous post, I filed a letter on January 13 with the U.S. Securities and Exchange Commission (SEC) in response to its liquidity risk management proposal and to Liquidity and Flows of U.S. Mutual Funds, a study by the Commission’s Division of Economic and Risk Analysis (DERA). My letter was one of four components of ICI’s multipart response to the SEC proposal.

The SEC’s Liquidity Proposal: Good Goals, Unintended Consequences

By Brian Reid

January 13, 2016

On January 13, I filed a letter with the U.S. Securities and Exchange Commission (SEC), in response to the SEC’s liquidity risk management proposal and to Liquidity and Flows of U.S. Mutual Funds, a study by the SEC’s Division of Economic and Risk Analysis (DERA). My letter was one of four components of ICI’s multipart response to the SEC proposal.

Mutual Fund Investments in Private Placements: an Overview

By Gregory M. Smith

November 23, 2015

Given recent media interest in mutual fund investments in private placements, it might be helpful to review mutual fund disclosure and valuation obligations. How do funds handle securities that are not publicly traded?

Changes to Money Market Funds Are Showing Up in Data

By Sean Collins

November 10, 2015

In July 2014, the Securities and Exchange Commission (SEC) adopted new regulations for money market funds.

The Wall Street Journal’s Dangerous Disservice to Investors

By Mike McNamee

September 22, 2015

For 75 years, mutual funds have successfully met their regulatory obligation to fulfill redemption requests within seven days, meeting investor demands and delivering on their investment objectives through good markets and bad.

Yet the Wall Street Journal seems determined to ignore this established history and the circumstances surrounding it. It has created a liquidity “measure” of its own devising—a test that no regulator has endorsed and no informed market participant would credit. The newspaper uses its self-invented process to imply that bond mutual funds are “pushing the limits” of Securities and Exchange Commission (SEC) guidelines governing fund liquidity.

How SIFI Designation Could Undermine Fund Governance: Parsing the Fed’s Proposal for GE Capital

By Paul Schott Stevens

June 16, 2015

Fund boards and independent directors have a long history of serving shareholder interests, yet today they face an alarming prospect that could threaten their ability to continue doing so.

Cybersecurity: Managing Risk in an Increasingly Connected World

By Todd Bernhardt

June 12, 2015

It’s increasingly obvious that we live in a world where cyber threats are evolving quickly and will remain persistent. But though such risks can never be eliminated, they can be managed, said panelists at ICI’s Operations and Technology Conference, held in conjunction with the Institute’s General Membership Meeting May 6–8 in Washington, DC.

“Preemptive Runs” and Money Market Fund Gates and Fees: Theory Meets Practice

By Sean Collins and Chris Plantier

August 20, 2014

A recent post on the blog of the Federal Reserve Bank of New York discusses the possibility that new rules by the Securities and Exchange Commission (SEC) allowing money market funds to temporarily impose fees or gates during times of market instability could increase the risk of preemptive runs on such funds during times of stress, rather than helping to limit destabilizing withdrawals, as the SEC intended.

Industry Leaders Reflect on Serving Investors in an Evolving World

By Christina Kilroy

June 4, 2014

Speaking on the Leadership Panel held Wednesday, May 21, at ICI’s General Membership Meeting (GMM), fund industry leaders agreed that challenges as well as opportunities abound for their businesses in today’s complex world.

SEC Chair White Stresses Need for FSOC to Consult Sources for Necessary Expertise

By Rachel McTague

May 22, 2014

Securities and Exchange Commission (SEC) Chair Mary Jo White today called for the U.S. Financial Stability Oversight Council (FSOC) to use outside expertise to the degree necessary in its process of designating systemically important financial institutions (SIFIs). She asserted that it is “enormously important for FSOC, before it makes any decision of any kind, to make sure it has the necessary expertise on any of those issues.”

Updated FICCA Framework Makes Auditing Omnibus Accounts Easier, More Efficient

By Kathy Joaquin

January 27, 2014

Many financial intermediaries—such as broker-dealers, financial advisers, and retirement plan recordkeepers—provide services to fund shareholders and maintain customer account information on their own recordkeeping systems. Fund sponsors, in turn, want to ensure that intermediaries are meeting their obligations in servicing fund shareholders, and so, have been seeking oversight tools that allow them to do this efficiently and effectively. ICI recently took steps to improve one of the critical oversight tools available to the industry, through a major update of the Financial Intermediary Controls and Compliance Assessment (FICCA) engagement framework.

IDC Paper Assists Boards in Oversight of ETFs

By Annette Capretta

October 19, 2012

The Independent Directors Council (IDC) has issued a new paper, Board Oversight of Exchange-Traded Funds in order to assist directors of exchange-traded funds (ETFs) in performing their oversight responsibilities. The demand for ETFs has grown markedly as investors—both institutional and retail—increasingly turn to ETFs as investment options in their portfolios. With the increase in demand, sponsors have offered more ETFs with a greater variety of investment objectives. Our paper also may be useful for directors who do not currently oversee ETFs but wish to be more familiar with a board’s oversight role, including those whose fund groups may currently invest in ETFs or intend to launch ETFs in the future.

Yes, Your Fund’s Board Is Watching Out for You

Amy Lancellotta

June 12, 2012

A recent Wall Street Journal headline posed the question, “Is Your Fund’s Board Watching Out for You?” (June 10, 2012).

Read more…

TOPICS: Fund Governance

MarketWatch Misunderstands Important Role of Mutual Fund Directors

By Amy Lancellotta

May 15, 2012

Shareholders deserve better than a recent MarketWatch column’s clear misunderstanding of a mutual fund director’s work. To correct just a few points:

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TOPICS: Fund Governance

Independent Directors and Trustees Deeply Concerned About More Changes to Money Market Funds

By Amy Lancellotta

May 9, 2012

As the SEC continues to consider flawed proposals that would have far-reaching consequences for money market funds, two groups representing mutual fund independent directors and trustees released a joint statement registering their deep concerns about any further changes to the regulation of these funds.

Funds' Board Structures Promote Efficiencies and Cost Savings for Shareholders

By Amy Lancellotta

December 5, 2011

Reporters, academics, and others who are unfamiliar with investment companies sometimes question the unusual structure of fund boards. Unlike operating companies—where each company as a rule is overseen by its own board—multiple funds in a complex typically share common boards. In Overview of Fund Governance Practices, 1994-2010, we found that 83 percent of fund complexes use a “unitary board” (one board for all their funds), while 17 percent use “cluster boards” (two or more boards, each overseeing a group of funds within the complex).

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TOPICS: Fund Governance

ICI and IDC Oppose SEC’s One-Size-Fits-All Approach to Proxy Access

By ICI Viewpoints

December 8, 2010

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TOPICS: Fund Governance

SEC Considerably Understates Costs of Rule 12b-1 Reform Proposal

By ICI Viewpoints

December 1, 2010

Following up on our November comment letter to the Securities Exchange Commission, ICI conducted and submitted our own cost-benefit analysis of the SEC’s proposal to replace Rule 12b-1.

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TOPICS: Fund Governance Fund Regulation

ICI Research Shows How Funds Have Addressed Changing Mix of Proxy Proposals

By ICI Viewpoints

November 10, 2010

New ICI research on trends in proxy voting by mutual funds finds that the 2007–2009 financial crisis altered the mix of proxy proposals funds voted on. Our economists’ examined more than 10 million fund votes cast during this period.

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TOPICS: Fund Governance