Investment Management Director Discusses Fund and Director Responsibilities

March 14, 2016

In remarks at the ICI’s 2016 Mutual Funds and Investment Management Conference, David Grim, the Director of the SEC’s Division of Investment Management, discussed his views on mutual fund boards’ responsibilities in light of recent events.

Director Grim noted that Third Avenue Management's recent decision to wind down one of its open-end funds highlighted a number of important issues in the investment management industry. Funds contemplating suspending redemptions should bring the Division into the conversation as early as possible. Additionally, fund management and boards should carefully consider the fact that "certain investment strategies—such as those focused heavily on distressed debt—may be more suitable as closed-end or private funds," rather than those subject to daily redemptions.

The Director also urged fund complexes to "conduct initial and ongoing due diligence" of any third parties to which they outsource critical functions. Such due diligence should include an exploration of the provider's business continuity and disaster recovery protocols. Fund complexes should also be aware of how their own continuity plans address the risk that a key service provider could suffer a significant business disruption. Fund complexes may also want to consider how they can "best monitor whether a service provider has experienced a significant disruption" that might impair its ability to provide uninterrupted service, and the potential impact such a disruption could have on fund operations and investors.”

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