SEC Staff Highlights Trends in Asset Management

At the second annual Conference on Emerging Trends in Asset Management, SEC Chair Gary Gensler and SEC Director of the Division of Investment Management Natasha Vij Greiner highlighted trends in asset management products and strategies. 

Chair Gensler focused on the following developments:

• Growth in Registered Funds. Chair Gensler described significant growth in SEC-registered investment funds' assets. He said over half of American households owned registered funds which have grown to more than $32 trillion. By contrast, he said that "45 years ago, household penetration was less than 6 percent." 

• Increased Concentration in Passive investment strategies. These passive investment strategies currently total $12 trillion, compared to $14 trillion for actively managed funds. In the ETF space, "the largest three complexes manage nearly 75 percent of the more than $7 trillion in net assets,... while the largest 10 complexes manage 80 percent of the $6.5 trillion" in U.S. money market funds. He said that such concentration is cause for concern, stating that, if historical trends continue, a few giant institutional investors will hold voting control of nearly every large U.S. corporation. Chair Gensler said that the trend toward passive strategies raises questions about the role of index providers, and that the SEC is considering whether these providers "may be acting as investment advisers" in some circumstances.

• Liquidity Mismatches in open-end funds. Chair Gensler described the risk that "open-end funds have potential liquidity mismatches—between investors' ability to redeem daily on the one hand, and, on the other, funds’ securities holdings that may have lower liquidity." He said that the SEC "adopted rules to address liquidity and dilution risks" and has "proposed amendments to enhance the liquidity risk management of open-end funds." He said the SEC is consulting with bank regulators on "regulatory gaps between collective investment funds and open-end funds," aiming to mitigate risks from such gaps.

• Growth in Private Funds.  Chair Gensler reported that private fund advisers manage over $30 trillion in gross assets and that the field grew by more than 10 percent in the last year. He asserted that certain subsectors, such as private credit, are growing even faster, with the global private credit market now at about $1.6 trillion.

• Elevated Leverage in Hedge Funds. Chair Gensler said a small number of large funds account for a majority of the leverage in private funds. He said this leverage raises "issues regarding financial stability," which led Congress to repeal "the exception that most private fund advisers previously relied on to avoid registration with the SEC," and the SEC to update Form PF and the Private Fund Adviser Rule.

• Growth of Separately Managed Accounts. Chair Gensler said that separately managed accounts have grown to over 54 million accounts representing more than $49 trillion in assets, a nearly 50 percent increase in the last five years. He said that this growth, driven in part by robo-advisers, has prompted new regulations, including a rule requiring firms to notify customers of unauthorized access to sensitive information and a proposed rule addressing conflicts of interest in AI-driven investment advice. He said the SEC is also considering further comments on a proposal to enhance the safeguarding of client assets.

Chair Gensler also provided updates on the SEC's work in publishing aggregate data with regard to the securities markets, pointing to the new report based on aggregated data filed by investment advisers on Form ADV (see related coverage) and the new Registered Fund Statistics report, which aggregates data about the registered fund industry (see related coverage).

In separate remarks, Natasha Vij Greiner stated that investments in alternative asset classes are growing, with private market securities and loans surpassing registered securities in recent years. She noted that in 2022, exempt offerings raised $3.7 trillion compared to $1 trillion from registered offerings. Ms. Greiner said that this trend is also seen in the growth of unregistered products and investment vehicles. She cited to growth in institutional and retail separately managed accounts, collective investment trusts and other non-registered investment vehicles.