SEC Division of IM Director Discusses Complex Products Monitoring and Alternative Mutual Fund Disclosure

At the SIFMA Complex Products Forum, SEC Division of Investment Management Director Norm Champ delivered remarks about issues, challenges and opportunities related to complex products. Specifically, Mr. Champ focused on the SEC's enhanced risk monitoring of complex products and review of alternative mutual funds disclosures.

Mr. Champ addressed the various media through which the SEC monitors complex products, such as reviewing requests for no-action and exemptive relief, disclosure filings, and guidance updates. He stated that, through such analyses, the SEC is able to evaluate the benefits of new products and identify industry-wide risks. According to Mr. Champ, guidance updates serve as meaningful communications that represent the staff's thinking on "discrete issues," not substitutes for the established rulemaking, exemptive application and no-action processes.

Additionally, Mr. Champ explained, the senior level engagement program enhances the SEC's risk-monitoring efforts. By meeting with a "diverse cross section" of high-level stakeholders from firms, the SEC is able to obtain a "focused and informed" view of risks facing the industry. Mr. Champ explained that coordination between separate divisions in the SEC is key to monitoring risks in markets.

Mr. Champ explained that the rapid growth of alternative mutual funds is a trend that was identified recently by the SEC, and that these funds "generally pursue strategies that seek to produce positive risk-adjusted returns that are not closely correlated to traditional investments or benchmarks." To deal with the challenge of disclosing the risks of these funds, Mr. Champ recommended that funds generally consider the degree of economic exposure the alternative investment strategy creates in addition to the amount invested in that strategy. Moreover, he said, firms should assess the completeness and accuracy of alternative investment-related disclosures on an ongoing basis in their registration statements. Mr. Champ stressed the importance of ensuring that retail investors have the information they need to make informed investment decisions, especially with respect to alternative mutual funds and other complex products.

See: Mr. Champ's Speech.