2019 in Review: Most Popular News and Views

As the year draws to a close, the MFDF’s Daily News Feed is looking back at the most popular news topics of 2019. News items on cyber security, the state of the asset management industry, and the News Feed’s new feature Board Doc drew the most hits throughout the year. A few of the popular blogs are included below.

Considerations on Cybersecurity Oversight

Participants at an MFDF event on cybersecurity discussed what boards should be alert for and questions that help facilitate oversight of management’s policies and procedures as well as that of third and fourth parties. Some of the questions raised included: (1) Does the adviser’s cyber security oversight program include policies and procedures for the oversight of fourth parties (vendors to the service providers)? (2) What makes a good incident response plan? How often is management’s incident response plan updated? (3) How does management assess differences in the security standards of better resourced-service providers vs. smaller service providers? How does management account for and fill the gaps in vendor standards?

Data Analytics Reshaping Distribution

Two papers from consulting firms McKinsey and Casey Quirk explore technology’s impact on the asset management distribution model and suggest that firms should allocate more resources into distribution technology. Casey Quirk observes that many asset management firms suffer from obsolete distribution functions and are failing to keep up with trends that have reshaped buyers’ needs and client demands. Firms are continuing to staff up while distribution officers’ efficiency goes down -- technology and not additional staff is the answer, Casey Quirk contends.

Victories in 36(b) Cases for BlackRock, MetWest

In a major victory for BlackRock, a federal judge in New Jersey ordered the dismissal of plaintiffs’ claims of excessive fees charged to two funds. Calamos and Davis were among other firms to secure legal victories in 36(b) actions in 2019. Hartford Services in 2017 and Axa Equitable in 2016 secured victories in 36(b) lawsuits in which the plaintiffs used similar arguments in the BlackRock case. Meanwhile, a district court’s thorough and decisive findings in MetWest’s Section 36(b) legal victory are feeding industry optimism. The https://ecf.cacd.uscourts.gov/cgi-bin/DktRpt.pl?630649%22%3E(Docket)%3C/a%3E">opinion  by Judge George Wu of the Central District of California analyzed the claims common to “subadvisory” lawsuits in which plaintiffs focus on alleged disparities between fees charged by advisers for managing their affiliated funds and the fees they charge as subadvisers to unaffiliated funds. “MetWest incurs substantial reputational, financial, litigation, regulatory, and business risks when serving as the adviser to the Fund. The Court concludes the same is not true (or it is greatly reduced) when MetWest acts as a subadviser to the Subadvised Funds,” the judge wrote.

Dear Board Doc: Board Culture Takes an Unfamiliar Turn

Q. I have been on my current board for over a decade and I am the chair of a committee. Our board has developed a cordial, accountable relationship with management even as our complex continues to face serious challenges with competition from passively managed funds and cost pressures. We recently lost two long-tenured directors who were very vocal during meetings and, in my opinion, asked the difficult questions that kept management accountable. We replaced them with two new independent directors who are not as vocal during meetings and who take a more measured approach to challenging management. While I have faith in our board and its abilities, I fear that our board culture, the tenor of our meetings, and our overall effectiveness is at risk. Is there a way to re-direct our board culture toward what it once was?