Paul Schott Stevens has been president and chief executive of the Investment Company Institute since 2004. He prides himself and his organization on working collegially with regulators, particularly the Securities and Exchange Commission, which oversees adherence to the Investment Company Act of 1940 and other fund industry rules.
In the past two years, however, the former lawyer has championed an industry-wide call for Chairman Mary Schapiro to not fix what isn't broken in a key segment of the industry: the $2.6 trillion money market mutual fund business. Money Management Executive spoke with Stevens about the outspoken stances on money market reforms he has taken ICI and its members on since the start of the year and what has driven him, from when he first took on his role, to be the voice for the fund industry, particularly in an ever-intensifying regulatory environment.
So what are some of the changes and challenges you're seeing from both within the ICI and in the asset management space?
Within the organization my objective was to assemble a really high-quality team and to make sure that they were working very effectively together. I saw as one of my principal challenges a need for us to bring all of the various disciplines represented on the staff to bear as we were dealing with public policy issues. That means getting lawyers, economists, lobbyists, communications and operations and other professionals working together on projects. We've done that now to a high degree of excellence and it's our standard of operating. This has made us more effective in every aspect of our work.
The challenges before us have grown apace. We had the challenge of recovering from the blow to our reputation, when I first came to the Institute, represented by the late trading and market timing scandal. I said at the time that the misdeeds of a few put the reputation of all at risk, and we had to work very hard to recover from that experience.
And no sooner were we were out of the woods than the financial crisis was upon us in 2007. That continues to be a focus of our efforts now almost five years later. I don't think there has ever been a time since I've been president when we weren't facing some kind of crisis.
In October 2011 we established a new arm of the ICI, called ICI Global, through which we have admitted to membership a class of funds offered outside of the U.S.
One aspect of my tenure here is that you can't look at the world any longer as simply the domestic U.S. market.
There are pressing issues for fund managers that are global in nature, and that's certainly a major new challenge for us. It will require us to find ways to add value for a broader and more complex membership over time.
How would you characterize your management style?
There are some issues that I have to be hands on about, but I'd like to see if we can't put the authority and responsibility at the lowest level in the organization where people can effectively handle it. I've taken the opportunity to speak formally about a whole range of issues and seek out opportunities well outside of industry conferences-in major speaking venues around the country. And these issues-including the future of the 401(k) system and retirement preparedness-are some of the most important we deal with.
One of the things I take greatest satisfaction in is that we are so much more effective than we have been in the past in our public communications work.
It's not only dealing with the media-it's articulating the issues we're addressing, the consequences for investors, and really tackling some tough subjects in a bold and public way.
For example, we published a letter in the New York Times at the time that the Joint Select Committee on Deficit Reduction was finishing up its work urging Congress to address the U.S. deficit problem. That appeal went unheeded, but that's an example of us stepping up and raising our voice.
Who do you turn to for inspiration and advice?
ICI's board consists of chairmen and CEOs of fund firms as well as fund directors across the industry. Many of these men and women are involved in managing organizations much larger than this, and I've learned a lot through my interactions with them.
It seems that the ICI has taken a more aggressive stance with the SEC on money fund reforms over the past year or so.
I don't think of this as becoming "more aggressive." I think it is a reflection of a lot of thought and consideration.
In March 2009, we submitted a highly detailed report to the SEC recommending a wide variety of changes in money market fund regulations. Chairman Shapiro had expressed her gratitude that we had "provided a roadmap." And that roadmap helped the SEC, in March 2010, to make money funds the first part of the financial system to be reformed in the aftermath of the crisis. Those reforms were also the first to be put to the test in the European sovereign debt and banking crisis, which is still unfolding.
We came to the table and wanted to work with the SEC to come up with sensible regs. Even after that, we continued to work on a variety of issues until earlier this year when the SEC said, well, we've decided what we're going to propose. There were two ideas: a floating NAV and a combination of capital buffers and redemption restrictions. Those were presented to us as non-negotiable, and at that point we concluded, if that's the case, then there's not a lot to talk about. We have strong reservations about both, and we believe that either would fundamentally alter the character of the product and industry. For that reason, it signaled an end to what had been years of collaborative exploration. We don't particularly like or relish that posture vis-à-vis the SEC. But there are times when we fundamentally disagree with ideas that regulators have-that we do not think are in the best interest of our investors. And, when that's the case, it is our responsibility to make our opposition very clear.
The ICI and SEC have publicly waged the money funds war at recent conferences including the ICI GMM and at times it looks to be a bit contentious.
Chairman Schapiro had a remarkably candid and cordial dialogue with the chairman of our 2012 general membership meeting, Mellody Hobson. She actually received a standing ovation when she entered the conference ballroom. And afterwards she told me that she was very grateful for the tone of the whole event. I didn't get the sense that it was contentious, by any means. While we have our disagreements about money market funds, that does not affect our respect for her and her leadership.
How much of an influence do you have on other ICI members' speaking engagements?
I work with Karrie [McMillan] and others here on messaging on different subjects. She works with our communications team in terms of crafting remarks, and we try to make sure they are consistent across the board as we are addressing various subjects. It's not so much a matter of me writing her talking points, but her reflecting the messages we're trying to convey at any particular time.