Fund directors who have been struggling to keep up with an intense regulatory environment for the past four years may face new challenges during the next four, according to the head of one association representing the interests of trustees.
The wave of deregulatory activity promised by the Trump administration will likely make it much easier to include a much wider variety of assets, including public credit, in the investment portfolios of mutual funds, ETFs and other regulated funds, Carolyn McPhillips, president of the fund-trustee advocacy group MFDF wrote in a May 6 Barron’s opinion piece.
Donald Trump, who pushed federal agencies during his first administration to eliminate two regulations for every one new regulation it passed, amped up the effort this time around by issuing an executive order in January requiring that federal agencies cut 10 regulations for every new rule passed.
Excessive regulation during the Biden administration inhibited the ability of the investment industry to raise capital, SEC chair Paul Atkins said during his Senate nomination hearing.
Atkins advocated what he called a “common sense” approach to regulation, especially the regulation of investments in cryptocurrency and other digital assets, which is likely to make it easier for registered funds to include in their portfolios a whole range of assets once available only to the most sophisticated investors.
That presents a tremendous opportunity for retail investors, but also presents significant volatility and risk – which fund boards are ideally suited to deal with as part of their duty to protect the interests of investors, McPhillips wrote.
“Directors can provide tailored oversight of funds rather than forcing shareholders to pay for regulations that apply across the industry that may be onerously expensive or not well-suited to every fund,” she wrote. “Directors are there to hold fund managers accountable, so shareholders don’t have to.”
“When a fund manager wants to pursue a new fund or investment type, independent directors are there to ask questions to determine whether it is appropriate and can be supported in the fund complex,” she wrote.
Fund boards are ideally suited to that type of oversight, but may have to do more of it as the variety of asset classes and risks available to retail investors grows, she wrote.
