Remarks at the Investor Advisory Committee Meeting

Thank you, George [Georgiev]. Good morning and welcome to all Committee members, especially the four newly appointed ones: Patrick Daugherty, John Liu, Sheldon Ray, and Adriana Robertson. Thank you for agreeing to serve as members of the Committee and for your commitment to public service. I would also like to congratulate George on your new role as Chair of the Committee.I appreciate your willingness to lead the Committee, and we are all excited to see you in this role in the years ahead.

Today's first panel will discuss potential investor confusion on certain features of private markets and alternative investment products, such as redemption gating, fee structures, and valuation methodologies.While market events over the past several months have made this topic quite relevant, the general question of whether investors understand the specific features and risks associated with a particular financial product is nothing new. It is a problem that predates the federal securities laws.

Recently, certain private credit funds faced elevated redemption requests, which prompted fund managers to implement limits on redemption. The redemption gates are not evidence of product failures. Rather, the gates worked as they were intended and disclosed-aligning the fund's redemption structure with the less liquid nature of the underlying portfolio securities, preventing the fire sale of assets, and ensuring that all investors, particularly the remaining shareholders, are treated fairly. These limitations are intentional features. However, a significant number of investors appear to have been surprised or confused by the redemption caps, which suggests a potential mismatch between investor expectation and the prospectus disclosures for the product. This suggests potential sales practice concerns that would be already covered by existing SEC and FINRA rules.

The second panel will address the corporate governance and investor protection implications of the growing concentration of voting power in passive investment vehicles. In his book, "The Problem of Twelve," former SEC general counsel John Coates makes the observation that the rise of passive index funds has led to an unprecedented concentration of voting power-the four largest index fund providers collectively control more than twenty percent of the votes of S&P 500 companies.[1] As he frames it, this means that in practical terms, a small number of individuals (perhaps as few as a dozen) exercise an outsized amount of proxy votes over many public companies. The more such asset managers exercise influence on a company's board composition, executive compensation package, risk management or other proxy proposals without obtaining a mandate from fund investors, the more it starts resembling active control. This phenomenon raises important questions and concerns regarding fiduciary obligations, the impact on corporate governance, and the level of transparency regarding communications from large shareholders to corporate boards and management. How proxy votes held by funds are exercised also has broader implications, such as regarding Schedule 13D/13G reporting as well as the regulation of proxy advisory firms. The panelists today will discuss various proposals such as pass-through voting and mirror voting and explore the practical and regulatory complexities of each of these approaches.

Later this afternoon, the Committee will consider recommendations on modernizing the fund proxy system for open-end funds and ETFs as well as quarterly and semi-annual corporate reporting. I appreciate the work that the Committee has put into developing these recommendations. The Commission welcomes input on these topics, and having a range of perspectives is what this Committee is intended to provide.

Thank you to the Committee members and the panelists for your time in preparing for this meeting.