WANTED: 220 to Oversee $44 Trillion
Norm Champ, Director, Division of Investment Management, SEC
July 13, 2012
There is a new sheriff in town for the mutual fund industry—and he may need to borrow money for bullets.
On July 9, Norm Champ took the reins of the Investment Management Division of the Securities and Exchange Commission. He succeeds former Goldman Sachs global investment officer Eileen Rominger, who is retiring after 18 months at the division’s helm.
Champ—who deferred interview with Money Management Executive until he could get his feet wet—takes over a 180-person division. With luck it may reach 220 next year. This relatively small division faces a flood of new challenges, new responsibilities, and an increasingly nervous fund industry.
“You have a runaway Congress that is implementing into law some good ideas, and some bad ideas, with very little thought as to cost,” says Ron Geffner, a partner and head of the Financial Services Group at the New York law firm Sadis & Goldberg.
Noting the tight budgetary constraints and growing responsibilities for all SEC divisions, Geffner warned that “we’re setting up one of our more prominent agencies to what I would regretfully say is almost certain failure.”
The Investment Management Division oversees the $44 trillion investment company and investment adviser segments of the financial services industry, according to SEC reports. That includes the $13 trillion managed by the investment company industry, including mutual funds, closed-end funds, unit investment trusts, exchange-traded funds and many other products.
Its official responsibilities include minimizing “financial risks to investors from fraud, mismanagement, self-dealing, and misleading or incomplete disclosure.”
The division attempts to live up to this mandate through a plethora of tasks, according to Aisha Hunt, head of the ‘40 Act practice at the San Francisco law firm Cole-Frieman-Mallon & Hunt. It helps the SEC itself in the development of regulations for enforcing new laws as well as the interpretation of these new laws and regulations for the public, as well as inspection and enforcement staff.
The division ensures disclosures are useful to retail investors, reviewing investment company and adviser filings. It handles administrative chores such as responding to no-action requests and requests for exemptive relief to launch new funds.
The division is also now on the frontlines of a number of regulatory battles affecting the fund industry. Champ’s troops have been charged with helping develop money market fund rules that might, among other things, require “floating” Net Asset Values (NAV), a capital buffer for these funds, and limitations on redemptions. Hunt says there is currently a stalemate at the SEC regarding these rules, which Commissioner Mary Schapiro is championing.
The headaches don’t end there for the division. It also has to duke it out with assorted interest groups on regulatory debates related to the Volcker Rule, which would ban banks from speculative investments; the use of derivatives by investment companies; adviser performance fees and incentive-based compensation arrangements; 12b-1 marketing fees, among many others.