Page 42 - Investment Advisor - November 2021

• Crypto trading and lending platforms; private funds, in particular private equi- reshape many parts of our economy.”
• Stable-value coins; ty and venture capital funds,” he said. Policymakers, he said, “must consider
• Investment vehicles providing “The number of private equity funds has what rules of the road we need for modern
exposure to crypto assets or crypto increased by 58% over the last five years; capital markets and for the use of predic-
derivatives; and the number of VC funds, 110%.” tive data analytics. Today, trading platforms
• Custody of crypto assets. The asset management field, he con- have new capabilities to tailor marketing
This year has brought the launch of tinued, is growing and evolving. and products to individual investors.
a number of open-end mutual funds “SEC staff are seeing new strategies, “While this can increase access and
investing in Bitcoin futures traded on structures, and business practices,” choice, such differential marketing and
the Chicago Mercantile Exchange. Gensler reported. “Technology is rap- behavioral prompts raise new questions
“Subsequently, we’ve started to see idly changing. This trend not only cre- about potential conflicts within the broker-
filings under the Investment Company ates new opportunities, but also risks for age, wealth management, and robo-advising
Act with regard to exchange-traded markets and investors.” spaces, particularly if and when brokerage
funds (ETFs) seeking to invest or investment advisor models are
in CME-traded bitcoin futures,” The securities regulator is optimized for the platform’s rev-
Gensler said in a recent speech. working to enhance disclosures enue and data collection.”
“When combined with the other Gensler issued a request for
federal securities laws, the ’40 offered by private funds — “in comment Aug. 27 seeking infor-
Act provides significant inves- particular the conflicts of mation on broker-dealers and
tor protections for mutual funds advisors’ digital engagement
and ETFs. I look forward to interest their managers may practices (DEP), including their
staff’s review of such filings.” use of apps with gaming features.
have and the information they Robinhood’s president, David
PRIVATE FUND DISCLOSURES are providing investors about Dusseault, told Gensler in his
Gensler also told the Financial comment letter that an SEC
Services Committee that the the fees they charge.” attempt to regulate DEP would
securities regulator is working face legal hurdles.
to enhance disclosures offered by —Gary Gensler, SEC chairman “To be justified and lawful,
private funds — “in particular the any DEP rulemaking will need
conflicts of interest their managers may Regarding digital engagement prac- to address significant issues,” Dusseault
have and the information they are provid- tices, or DEPs, “asset managers — both wrote. Under the Administrative
ing investors about the fees they charge.” incumbents and fintech startups — can Procedures Act, “the SEC has a founda-
Enhanced disclosures in this area, tailor marketing and products to individ- tional duty of reasoned decisionmaking
Gensler told the committee, would better ual investors, using predictive data ana- when it comes to rulemakings, partic-
enable “pensions and others investing in lytics and other DEPs,” Gensler stated. ularly rulemakings addressing issues
these private funds to get the informa- In the case of robo-advisors or invest- so consequential to retail investors. In
tion they need to make investment deci- ment advisors, Gensler continued, “I order to conduct a proper rulemaking, the
sions. Ultimately, every pension fund wonder what they are doing within the SEC will need to ‘examine the relevant
investing in these private funds would predictive data analytics algorithms — if, data’ — including quantitative and qualita-
benefit if there were greater transpar- statistically speaking, they are maximiz- tive evidence submitted — and articulate
ency and competition in this space.” ing for our returns as investors, or, say, the a satisfactory explanation for its action
Gensler said he’s asked staff for rec- revenues of the platforms. Further, to the including a ‘rational connection between
ommendations on enhanced reporting extent that they’re maximizing revenues or the facts found and the choices made.’”
and disclosure through Form PF, which doing a bit of both, how do we address the Sen. Pat Toomey, R-Pa., ranking
private fund advisors must file with the potential conflicts of interests that arise?” minority member on the Senate Banking
agency, or other reforms. Committee, told Gensler in his com-
In separate comments during a recent PREDICTIVE DATA ANALYTICS ment letter to “proceed cautiously”
conference, Gensler noted that the SEC During the Oct. 5 oversight hearing and avoid imposing new regulations on
oversees about 14,000 RIAs with more than held by the House Financial Services digital trading apps that could restrict
48 million clients and almost $112 trillion in Committee, Gensler also reiterated his investor freedom.
regulatory assets under management. concerns about predictive data analyt-
“Within this field, there has been sig- ics and machine learning, which he Washington Bureau Chief Melanie Waddell can
nificant growth in the size and number of said “are shaping and will continue to be reached at [email protected].

40 INVESTMENT ADVISOR NOVEMBER 2021 | ThinkAdvisor.com