Jenna Lomax outlines the challenges US fund administrators and US technology vendors face as the SEC proposes new amendments to protect private fund investors, amidst the backdrop of Biden’s first term and the Great Resignation
The US, as it currently looks on the world’s stage, has experienced unprecedented change in the last year. With a new president sworn in last January, and the first ever female and biracial vice president by his side, the US electorate certainly pushed the figural reset button when voting in 2020. Readers of a certain age will understand the phrase: “things sure have changed here on Walton’s Mountain”.
Domestically, President Joe Biden is still trying to push through his economic post-COVID-19 agenda, known as the Build Back Better plan. In addition, the US president signed an executive order on 9 March which emphasises the US Government’s efforts to ensure that virtual assets are developed and regulated responsibly.
Internationally, he stands united with the rest of the western world in condemning the Russian invasion against Ukraine.
Since the start of this year, the U.S. Securities and Exchange Commission (SEC) has proposed amendments to Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds. The proposed amendments are designed to enhance the Financial Stability Oversight Council’s (FSOC’s) ability to assess systemic risk, as well as to bolster the commission’s regulatory oversight of private fund advisers and its investor protection efforts, in light of the growth of the private fund industry.
Form PF is important, the SEC says, because it has “helped establish a baseline picture of the private fund industry for use in assessing systemic risk”. In addition, it has “highlighted the importance of receiving current and robust information from market participants”, particularly when considering the market volatility experienced in March 2020, when the COVID-19 pandemic virtually grinded the market to a halt.
To boot, SEC introduced new rules and amendments under the Investment Advisers Act in February to enhance the regulation of private fund advisers and to protect private fund investors by increasing transparency, competition, and efficiency. If the rules are adopted, “they would help investors in private funds on the one hand, and companies raising capital from these funds on the other”, explains SEC chair Gary Gensler.
The proposed rules aim to increase transparency by requiring registered private fund advisers to provide investors with quarterly statements, detailing certain information regarding fund fees, expenses, and performance.
However, away from economics and politics — or perhaps very much because of it — ponders the American workforce that have been reconsidering their career choices, and on an impressive and unprecedented scale. This phenomenon, now coined as the “Great Resignation”, has seen the country’s workforce (particularly the under 40s) leave their professions in droves — seeking more “fulfilling” roles than their pre-pandemic ones.
If the US’ Great Depression necessitated an economic need to “work wherever”, the US’ Great Resignation has necessitated an (often philanthropic) need to “work for the better”.
It is a phenomenon that is not unique to the US, but has much prevalence in the country because of the sheer number of US citizens recorded leaving their professions over the last year.
A “historically high” 4.3 million US workers quit their jobs in December 2021, according to the US Labor Department’s latest Job Openings and Labor Turnover report.
This statistic was released at the close of “a record-shattering year”, the Labor Department said, when roughly 47.4 million of the US workforce voluntarily left their jobs to seek “better work” during the COVID-19 pandemic. For comparison, 42.1 million people quit in 2019.
Amid this backdrop, time will tell how the FSOC’s ability to assess systemic risk and the Investment Advisers Act will affect asset servicers directly; the effect may be quite minimal.
The more pressing subject is undoubtedly the human resources side of it all — the pressing question of: “will we have the staff?”
Tougher than the rest?
This month marks the two-year anniversary of the first COVID-19 lockdown. Looking back over the last two years and outlining how the US fund administrator fared, Ryan Burns, head of global fund services, Americas at Northern Trust, affirms: “It has been a valuable partner, providing consistent operating service and a point of connection for asset managers to the market. As asset managers and investors adapted to the pandemic, fund administrators were often a partner to support changes to operating models to address the remote work processes of asset owner clients.”
Of course, nothing in the world of asset servicing happens in a vacuum. US fund administrators are not just complying with US regulations, including the aforementioned SEC proposals, but also coming to terms with the changing landscape of European regulations, such as the heavily ESG-influenced Sustainable Finance Disclosure Regulation and the Central Securities Depositories Regulation. Lest we forget the data and cost pressures that will come with the move to shorten the settlement cycle for US equities to one business day (T+1).
In the context of this “continued evolution of regulatory requirements, coupled with increased data transparency”, Northern Trust’s Burns outlines, “Fund administrators are helping asset managers define and adapt their operating models to support the changing landscape while also providing a level of data that meets managers where they are, in the format that best serves them.”
Expanding on this, New York-based Bhagesh Malde, global head of real assets at SS&C Technologies, says: “Data management and transparency will be a big challenge in 2022 — gathering data and making sense of it.
“Funds are dealing with more and more data, in different formats, that needs to be processed, standardised and used in meaningful ways, whether for investments or reporting. Ensuring data is clean and accessible is our priority.”
Providing the level of data that regulatory requirements require calls for the right technology and people, exactly where US vendors come in and play their part. The US has always been at the forefront of global technological advancement, whether that was way back when American inventor Albert T. Marshall patented the first mechanical refrigerator in 1899, or Utah-born Philo Farnsworth developed the first all-electronic television system in 1938. The US has constantly been at the centre of technological innovation since its nation’s birth, and this is no different when concerning the needs of its asset servicers.
Technology enhancement is, broadly speaking, still very much guided by the input of human activity at the fund management and fund administration level. With this in mind, how can fund managers look to retain their staff who may be thinking of going elsewhere when they are continuously (and sometimes desperately) trying to achieve their technology goals to meet the previously mentioned data efficiency and regulative compliance?
Land of hope and dreams
SS&C Technologies’ Malde looks to answer the question when he outlines that the concerns felt by fund administrators concerning the US’ Great Resignation could actually drive some benefits.
“The Great Resignation, combined with business pressures, is forcing US fund managers to look at how they manage their technology development and support. As a result, we see a surge in demand for outsourcing services. Outsourcing ensures your technology partner takes care of your upgrades, keeps up with best practices, and helps you reach your goals.”
Away from the technological element of the debate, is the human side. Something that Andy Schmidt, global industry lead, banking at CGI, analyses in detail.
“The Great Resignation – combined with the ‘War for Talent’ – is making it difficult for employers to find the people they need for the work that they want to deliver. However, it is important to understand that the drivers behind this movement are a combination of rational and emotional elements that can be managed to not only attract great employees, but also grow and retain them over time,” he says.
“With that in mind, let us start with the rational elements — the things that we can measure. The list is fairly straightforward: salary, bonuses, time between raises, size of increases — are all things that employees can, and do, measure as well as compare when looking at their current job, or a potential new one. It can be hard for employers to compete on the rational side of the equation, because higher salaries often mean lower profits — an outcome that most companies try to avoid. So what is the answer? Simply pay more and hope for the best? No — and this is where the emotional side of the equation comes in. The pandemic kicked off the trend of working from home and productivity actually increased, while the heightened interest in sustainability has kept many people from traveling to see clients and prospects. At the same time, many saw innovation decrease, because connections matter.”
“Connections to the workplace and the team are vitally important and are hard to manage in a remote environment – there are no watercooler moments where that crucial Eureka can occur. Also important to the emotional side of the equation is a connection to meaningful work – knowing that you are making a difference whether it is to your client, your company, or even your community, which are also key factors in employee satisfaction. This is why balancing the talent equation is essential,” Schmidt concludes.
