Month: March 2017

Compliance Bricks and Mortar for March 31

It’s been a busy week, getting information and drafting for the Form ADV filing. I have a big stack of stories to read and write, but these are some of the compliance-related stories that recently caught my attention.

United’s Policy Management Lessons by Matt Kelly in Radical Compliance

Compliance officers who want a glimpse of your future, look no further than the spectacle that unfolded Sunday morning at Denver International Airport: a tale of policy management mismanaged, reputation risk, and plenty of commentary on social media.

Some day, some way, a headache like this will be yours. This time the lucky company was United Airlines. Let’s taxi into this teachable moment. [More…]

The myth of the 70,000-page federal tax code by Dylan Matthews in Vox

The US tax code is definitely complicated at points, so it’s no wonder that the claim that it is 70,000 pages long has become a widely cited factoid, most recently in messaging from Republicans on the House Ways and Means Committee, the committee that’s leading the Republican effort to simplify and reform income taxes:

The only problem with this claim is that it’s clearly false. As of 2014, the tax code was only about 2,600 pages long. [more…]

SEC Private Equity Enforcement: A More Aggressive Approach by Andrew J. Lichtman and Howard S. Suskin in the Compliance & Enforcement blog sponsored by NYU Law’s Program on Corporate Compliance and Enforcement

Over the last several years, the Securities and Exchange Commission (“SEC”) has targeted private equity funds for various fee allocation arrangements and conflicts of interest.  Rather than describing the fee practices as fraudulent, which would require a showing of scienter, the SEC has concluded that the private equity advisers committed disclosure violations.  However, a recent proceeding in which the SEC secured a settlement based on both breach of fiduciary duty and fraud may foreshadow a more aggressive approach.  Some context first. [more…]

Why the SCCE and HCCA Don’t Care by Adam Turteltaub in the SCCE’s Compliance & Ethics Blog

With a combined membership of over 17,000 dues-paying individuals, the SCCE and HCCA are, obviously the go-to resource for compliance professionals. And, it’s also the go-to resource for vendors wanting to reach compliance professionals.

And, from time to time, those vendors will ask for an endorsement, to offer special discounts to our members, or want their product or work formally recognized. Inevitably, and to them dismayingly quickly, we say no. [More…]

Private Real Estate and Regulatory Assets Under Management

It’s that time of the year again. Real estate fund managers registered with the Securities and Exchange Commission are working on their Form ADV filings. I’m hearing a few questions about the right way to calculate Regulatory Assets Under Management.

The instructions to Form ADV Part 1 Appendix B provide three steps on page 9:

First, is the account a securities portfolio?
Second, does the account receive continuous and regular supervisory or management services?
Third, what is the entire value of the account?

Form ADV deems a “private fund” to be a “securities portfolio.” If you’ve gotten this far you’ve already given up on dealing with subtleties of the “private fund” definition and accepted that your real estate fund is a private fund. That gets you past the first step.

For fund managers, the second question is relatively easy since fund management falls squarely into management services.

That leaves us with the third step. The instructions provide:

In the case of a private fund, determine the current market value (or fair value) of the private fund’s assets and the contractual amount of any uncalled commitment pursuant to which a person is obligated to acquire an interest in, or make a capital contribution to, the private fund.

The first question is what to do about the subscription credit facility. As far I can tell: nothing. That leaves the likelihood that the fund RAUM is slightly high. Draws from the credit facility will be repaid with capital calls. So any investments still financed by the facility will be double counted. The value of the investment is in the value of the fund assets, but the capital has not been called to fund the investment and will be added as part of the uncalled capital.

The second question is what portion of the value of the real estate should be included as a fund asset. Some fund managers are using the gross value of all of the real estate. Others are using the net value after deducting the mortgage debt.

I’ve heard mixed messages from the SEC on which is the preferred method. One thing is clear is that the SEC wants consistency on how you come to the value and that you don’t act in a way that is deceptive.

The argument on using the net is that it better equates to the true fund value. The mortgage debt is generally isolated to the investment, so it is not fund-level debt. The fund is not leveraged.

As a comparison, it would seem strange for a private equity firm to use the gross value of a portfolio company in its fund valuation. I have not heard from any private equity fund managers that are adding the portfolio company level debt into the firm’s RAUM.

Many funds use the Investment Company Guidelines for real estate fund accounting. Those Guidelines call for the net value to be shown on the fund’s balance sheet. The Form ADV instructions say that if you calculate fair value in accordance with GAAP or another international accounting standard for financial reporting purposes you are expected to use that same basis for purposes of determining the fair value of your assets under management.

The SEC wants the registered adviser to use the same method in calculating assets under management that it uses to report its assets to clients or to calculate fees for investment advisory services. That would all seem to lead back to the equity capital in the real estate investments and not the gross value of all of the real estate investments. Investors generally look to the return on equity and capital, not the gross value of the real estate assets.

The third question is what to do about non-fund real estate investments, like direct investments,  separate accounts and joint ventures.  The general consensus seems to be that can they fall outside the scope of RAUM.

While there is still debate over whether a real estate fund is a “private fund”, these type of dirt investments generally seem to fall far away from that definition. There are few, if any, structural entities that would make one think that it is investing in a securities. There is little in the way of cash holding that may end up in a money market fund or other security investment. That means these “dirt” investments would not be a securities portfolio and don’t make it past step one in the RAUM analysis.

I’ve seen a few real estate managers address the RAUM mismatch in Form ADV Part 2. Item 5 states RAUM, then add in other measures of assets under management and how they got to those amounts. That extended assets under management would include the “dirt” investments.

I’m curious to heard what methods you are using.

Sources:

Compliance Bricks and Mortar for March 24

These are some of the compliance-related stories that recently caught my attention.

Women in banking To err is human, to get fired for it … female by Tanaya Macheel in American Banker

One of the latest studies of gender differences in financial services finds female advisers accused of wrongdoing are 20% more likely to lose their jobs than male advisers accused of wrongdoing. The women also are 30% less likely to be rehired than the men within a year following the incident, even though the women are less likely than the men to commit another offense, according to the study’s findings. The infractions cover a wide range, including misrepresenting or omitting key facts and committing fraud. But even controlling for factors like the severity of the offense — as well as qualifications and experience level — women fared worse than men. The study identified Wells Fargo Advisors as the biggest offender, saying its female advisers were 25% more likely to experience a “job separation” after misconduct than their male counterparts. That figure is about 20% for Morgan Stanley’s female advisers and close to 15% for those from Bank of America Investment Services and JPMorgan Securities. The report is titled “When Harry Fired Sally.” You can access it here. [More…]

Trump’s SEC Pick Set for Tense Reunion With Elizabeth Warren by Benjamin Bain and Elizabeth Dexheimer in Bloomberg

Two decades ago, Warren was a little-known law professor at the University of Pennsylvania. Clayton was a Penn law student at the same time. She went on to become the finance industry’s most relentless critic, while he made millions as a lawyer representing big banks and hedge funds. Their paths will cross again Thursday at Clayton’s Senate confirmation hearing, where Warren will be among the most outspoken lawmakers questioning his work on behalf of the industry. [More…]

Anthem’s Blow Against Corporate Trust by Matt Kelly in Radical Compliance

This isn’t an abstract problem. Distrust in institutions is growing, with real consequences for corporations and compliance officers charged with keeping them on a trustworthy path.

I explored this in a recent post on the NAVEX Global blog. We have the Edelman Trust Report, an annual survey of public trust in various institutions: it shows trust declining for all types of institutions, including businesses and governments, around the world. We also have the PwC CEO Survey of 2017: it cites organizational trust as an emerging risk for businesses, and noted that companies able to foster trust will have a competitive advantage in the future. [More…]

Why the Securities and Exchange Commission’s Administrative Law Judges are Unconstitutional by Linda D. Jellum in NYU’s Compliance & Enforcement

I answer these and other questions are in my recent article,[27] explaining why the SEC ALJs’ appointment violates the United States Constitution and why there is no easy fix. Further, I note that it is not just the SEC ALJs’s appointment process that is constitutionally infirm. In addition, the SEC ALJs, indeed all ALJs, are subject to multiple for-cause removal protections. In 2010 in Free Enterprise Fund v. Public Company Accounting Oversight Board, the Supreme Court held that dual for-cause removal provisions violate separation of powers.[28] Possibly, the Supreme Court will refuse to extend its holding in Free Enterprise to ALJs given the potential impact on the administrative state. However, if the Court meant what it said and if the case is to have any relevance beyond the agency involved, then the multiple for-cause removal provisions affecting the SEC ALJs specifically and all ALJs generally will need to be fixed. The constitutional challenges raised in these cases are far from inconsequential. Thousands of ALJs may be subject to unconstitutional appointment and removal provisions. Thus, the shadow of Free Enterprise looms large. [More…]

12b-1 Fees: It Is Time To Bid Them Farewell? in Kitces.com

From its start in 1980, the 12b-1 fee was controversial – a distribution charge assessed against current mutual fund investors, that the fund company can use to market the fund to new investors. In other words, the mutual fund got to use investor dollars (rather than its own money) to grow the fund’s assets under management (AUM).

In theory, this use of the mutual fund investor’s own money to market the fund company’s products was supposed to be good for the investor, because it would help grow and scale the fund and bring down its operating expense ratio. However, several decades later, subsequent analysis is finding that while mutual funds that charge 12b-1 fees are successful at incentivizing salespeople to bring in more assets under management, the 12b-1 fee isn’t living up to its promise of helping to scale up and bringing down the expense ratio as the mutual fund grows. [More…]

Cyclists Break the Law to Stay Safe, Study Finds by Joe Lindsey in Bicycling

The study (“Scofflaw Bicycling: Illegal But Rational”), just published in the Journal of Transport and Land Use, details when, how, and why cyclists decide to break traffic laws. The authors, an engineer and sociologist from the University of Colorado and an urban planning professor at the University of Nebraska-Lincoln, set out to study the subject of cyclist misbehavior, which they say has surprisingly scant research.  [More…]

 

The Republican Agenda and Private Real Estate

Since President Trump is deep in private real estate, maybe there will be some good things coming to the industry during his administration. 

There were six major themes that President Trump campaigned on the most:

  1. Immigration and the wall
  2. Trade fairness
  3. Tax changes
  4. Healthcare changes
  5. Dodd-Frank changes
  6. De-regulation in general

Other than immigration, President Trump has proven himself to prefer to make policy through the 140 characters in Twitter, instead getting deep into the policy weeds. We need to look to Congress for a legislative blueprint, since President Trump does not seem to have one.

What does the Republican leadership in Congress want do? Specifically what do Paul Ryan in the house and Mitch McConnell in the Senate?

What can they convince the House and Senate to do? 

That is the big question right now with the American Health Care Act. The Republican house is torn between those who think the bill goes too far and those who think it doesn’t go far enough. Many campaigned on just the repeal part. Many others learned that what their constituents didn’t like about Obamacare is that is too expensive. The American Health Care Act only does one of those.

Speaker Ryan has promised a vote on the Republican healthcare bill on Thursday to coincide with the 7 year anniversary of the Affordable Care Act. We’ll see if Speaker Ryan is able to shepherd this very unpopular bill through the House and get enough votes.

Then what?

Most likely tax reform. Speaker Ryan published his “A Better Way” white paper in June of 2016. Unlike the American Health Care Act, legislators have been able to look at this already. Here are some of the highlights. 

  • Biggest change is the Border Adjustment Tax (unlikely to affect real estate directly.
  • Fewer tax brackets
  • Top rate of 33% for individuals 
  • Limit pass-through income from partnerships and LLCs to 25%
  • Lower corporate tax rate to 20%
  • Eliminate deductibility of interest expenses.
  • Individuals only taxed on half of their dividend and capital gains
  • Immediate cost recovery for investments instead of a depreciation schedule. (not clear on real estate)
  • Net Operating Losses can be carried forward and be adjusted for inflation
  • Eliminate the Alternative Minimum Tax,
  • Eliminate the estate tax
  • Eliminated Obamacare taxes (the last one is the healthcare bill)

President Trump mentioned removing favorable treatment of carried interest during the campaign. That is not Speaker Ryan’s blueprint. It’s been threatened before and survived.

After that, or during that, is financial de-regulation. Chairman Jeb Hensarling of the House Financial Services Committee has been working hard on his Dodd-Frank off-ramp for the last six years pushing bits of legislation through his committee and on to the House floor. The  Financial Choice Act has been floating around for a year and packages that work into one package.

“As the dust begins to settle on the post-crisis response, however, there has been a growing recognition that financial regulation has become far too complex and too intrusive and places too much faith in the discretion and wisdom of bank regulators.”

Here are some highlights:

  • Pitch is to help community banks.
  • Adjust capital requirements – removing Basel requirements
  • Make credit more available
  • New Bankruptcy code for financial institutions
  • Repeal FSCO’s Systemically Important Financial Institution designation powers
  • Reform Consumer Financial Protection Bureau
  • Federal Reserve Reform
  • Repeal the Volker Rule
  • Repeal Dodd-Frank registration requirements for private equity firms
  • Expand definition of accredited investor: Same income and net worth tests, but adds financial services experience or some sort of qualifying experience.

As much as the Republicans are campaigning against de-regulation the Financial Choice Act does not define “private equity firms” and requires the SEC to promulgate a new regulation to define it. SEC registration was on the edge during Dodd-Frank, The house version of the bill and the Senate version of the bill took opposite approaches on whether to subject private equity firms to SEC registration. During hearings, private equity kept being equated to leveraged buyouts that bankrupted companies and put people out of work to enrich corporate raiders.

 

I presented the above to PartnerConnect East 2017 yesterday. 

 

Sources:

A Better Way” white paper

Compliance Bricks and Mortar – St. Patrick’s Day Edition

Since I work in Boston and my office is next to the Black Rose, it’s hard to ignore St. Patrick’s Day. And yes, the Black Rose was already full of drinking patrons at 9:00 am. Getting past all the Irish cheer, these are some of the compliance related stories that recently caught my attention.

Super Hedge Fund by Sharon Hannes in Harvard Law School Forum on Corporate Governance and Financial Regulation

Activist hedge funds revolutionized corporate America and generated both excitement and criticism alike. This article suggests that a novel market mechanism, a “super hedge fund,” would maintain the benefits of hedge fund activism, while curbing its downsides. The super hedge fund would not really be a fund but, rather, a contractual arrangement among a broad group of institutional investors and a task force of financial experts. The task force would pool together the potency of the institutional shareholders in a sophisticated manner and then unleash its sting on target corporations. [More…]

Besides greed, what motivates insider traders? by Andrew Snyder

Insider trading is strikingly similar to espionage: stealing information for personal gain or spying for the benefit of another entity. The magnitude of a tipper passing confidential company information and a government insider such as Edward Snowden who hands over national classified secrets are incomparable, but what’s similar is who’s doing the lying, cheating, stealing and why they’re doing it. [More…]

“And” Or “Or” – This Ninth Circuit Opinion Highlights The Difference by Keith Paul Bishop in California Corporate Securities Law

“And” and “or” are classified as conjunctions. They are classified as such because they yoke together words, phrases, clauses and sometimes even sentences. They are not interchangeable, however, as illustrated by the recent opinion by the Ninth Circuit Court of Appeals in Zetwick v. County of Yolo, 2017 U.S. App. LEXIS 3260 (9th Cir. Cal. Feb. 23, 2017). [More…]

Connecting Fraud, Pressure, and Culture by Matt Kelly in Radical Compliance

My theme was fitting the fraud triangle to your organization’s risks—and as sometimes happens, I stumbled into an insight while speaking that was so useful, I wanted to share here.

First, let’s remember the fraud triangle itself. That’s the device auditors use to help think about how fraud might strike an organization. It has three legs: rationalization, opportunity, and pressure.

My contention is that for each leg of the fraud triangle, an opposite force exists.

[More…]

Image: Copyright: xmocb / 123RF Stock Photo

The Case of the Security Guard with Ketchup on his Hands

With the flow of announcements from the Securities and Exchange Commission, odd things will catch my eye for further review. For the insider trading case against Todd David Alpert, it was because the SEC said that he “worked as a security professional at the home of a Heinz board member.” A tilt of my head left me wondering what kind of securities professional was working at the home of a board member.

That was me confusing “security professional” with “securities professional.” Of course, I realized that “security professional” was a fancy term for security guard. But by the time I realized my mistake, I was deep into the complaint against Todd David Alpert.

Once I realized he was a security guard I immediate thought of the railroad insider trading case. I was ready to give Mr. Alpert credit for leveraging his position. I assumed he had identified the comings and goings from his post and tied that into what was going on behind the scenes.

I was thinking of the defenses from the railroad workers noticing the action in the railyards or counting cars at WalMart.

Then my jaw dropped.

The problem was the board member. The unnamed board member would forward emails to the Mr. Alpert in his role as a security professional, and ask him to print the email and attachments.

The Board Member forwarded an email regarding the potential Heinz acquisition with a direction to “print now”. The attachments to the email contained materials that would be discussed on an upcoming Heinz board of directors’ call, including a copy of the revised acquisition proposal letter, which included the word “CONFIDENTIAL” in boldface and stated that the proposed price for Heinz for $72.50 per share.

From the timeline presented in the case, Mr. Alpert read the attachment and quickly bought Heinz stock and options.

I can’t believe the board member was forwarding this incredibly sensitive information to the security guard to print. Who was this board member that was too lazy or incompetent to print a document on his own?

I pulled up the list of board of directors to see.  I couldn’t pull the pieces together. Then I got distracted when I saw that Lynn Swann, the ex Pittsburgh Steeler was on the board. One of those 12 does not know how to print email attachments.

Sources:

Financial Choice Act

Congress is currently occupied with health care. That is just one item on the agenda for the Republican leadership in Congress and President Trump. All have mentioned in one way or another to undo some of the evils of Dodd-Frank.

The big questions is how long will it take to move the American Health Care Act through Congress and deliver a bill that President Trump will be willing to sign. The second question is whether Congress will be able to move forward with any other legislation while dealing with health care.

Whenever Congress is ready to work on other legislation, Jeb Hensarling, Chairman of the House Financial Services Committee, has a law he is ready to move forward: The Financial Choice Act.

The Financial Choice Act is the bill that he sees as undoing many of the evils of Dodd-Frank.

“As the dust begins to settle on the post-crisis response, however, there has been a growing recognition that financial regulation has become far too complex and too intrusive and places too much faith in the discretion and wisdom of bank regulators.“

It has many of the things you might expect: repealing the Volker Rule, adjusting bank capital requirements, limiting the powers of the Consumer Financial Protection Bureau, limiting the powers of the Financial Stability Oversight Council, limiting regulatory limits on community banks.

Two items struck me as particularly relevant to private funds: SEC Registration and the definition of accredited investor.

Section 452 changes the definition of “Accredited Investor.” It keeps the two current brightline tests of income and net worth. I think those are key tests given the illiquid nature of private placements. It fixes those standards and removes Dodd-Frank’s requirement that the SEC adjust the amounts every four years.

The bill adds in a third test, allowing anyone licensed as a broker or investment adviser to also be an “accredited investor.” It adds a fourth test, allowing the SEC to create a regulatory regime for individuals to prove that the knowledge, education or job experience to allow them to invest in private placements.

We have seen from SEC Acting Commissioner Piwowar that he on board with opening up the definition of accredited investor.

The bigger change for private equity funds and probably for real estate funds is that it exempts “private equity fund” managers from the registration and reporting obligations of the Investment Advisors Act.

As you might expect, the bill does not take the time to define “private equity fund.” It gives the SEC six months to issue a rule for the definition.

The arguments are that private equity should be treated like venture capital. Private equity does not pose systemic risk. Private equity investors are generally sophisticated. The SEC would be more effective focusing its exam efforts on retail investment advisers.

Obviously this bill is a long way from being enacted. These two small provisions could easily be eliminated from the final law during the legislative process. I expect health care is going to bog down Congress for a long time.

Sources:

Compliance Bricks and Mortar for March 10

These are some of the compliance-related stories that recently caught my attention.

SEC Reduces Whistleblower Bounty Based On Culpability And Delayed Reporting by Harris Mufson, Steven J. Pearlman and Amy Blackwood in Proskauer Whistleblower Defense

On February 28, 2017, in an Order almost entirely devoid of detail, the SEC announced that a whistleblower will receive 20% of any monetary sanctions collected in an enforcement action commenced as a result of the whistleblower’s tip. The SEC is giving this “reduced” award while acknowledging that the whistleblower (1) was “culpable” in the securities violation at issue, and (2) unreasonably delayed reporting the company’s wrongdoing to the agency. [More…]

Beware of “Virus-Infected” Emails Purportedly From the SEC!!! in TheCorproateCounsel.net

Whoa! Last week, a member received an email claiming to be from EDGAR/SEC that had an attachment for revised 10-K filing instructions. She forwarded the email to her IT department – & it turned out the attachment was a “very nasty piece of malware” that could have infected the entire company. It was a phished email that came from a SEC email address ([email protected]) with a subject line of “Important changes to Form 10-K and Instructions.”

So beware! This is quite a tailored type of malicious email for an in-house lawyer to be receiving! Yesterday, the SEC posted a notice about this phishing scam.

You get what you ask for by Jack Vinson in Knowledge Jolt with Jack

This topic is familiar in many management circles: If you look for something, you will likely find it. If people know you are monitoring or looking for something, they will make an effort to supply that thing. And on the other side, if you don’t ask for that thing / report / result, you won’t get it. [More…]

SEC Enforcement Arm Braces for Cutbacks

The SEC’s enforcement arm is bracing for budget cutbacks that may result in fewer enforcement cases, Bloomberg writes.

Already, the department has halted non-essential travel and the hiring of outside contractors who help in-house lawyers with cases, sources tell the publication. [More…]

Terrorism Financing Via Bitcoin May be Exaggerated by MARA LEMOS STEIN

Law enforcement and regulators best take a measured approach in tackling the potential increase in the use of virtual currencies to finance terrorist activities, as there is still scant evidence the nascent technology will become a preferred method of cash transfer and other means of funding remain readily available and hard to track, said a U.K. intelligence think-tank. [More…]

Inadvertently Obtaining Custody

The concept behind the custody rule is simple. The adviser needs to hold client assets safely and needs a third -party to verify that the adviser is actually holding the assets. But as it’s been put in place, the Custody Rule is complicated. At times the SEC has needed to provide guidance, and then provide further guidance  to the guidance.

In fairness, part of the problem is that there are so many different business models employed by registered investment advisers that it is hard to have things work for all of them.

The latest guidance under the Custody Rule has to do with some of the arrangements in place between advisers and their custodians. It turns out that some standard custody agreements grant advisers broader access to client funds and securities than the advisers’ agreements with their clients.

The SEC’s Division of Investment Management issued a Guidance Update discussing situations when an investment adviser may inadvertently have “custody” of client assets pursuant to Rule 206(4)-2 under the Advisers Act of 1940.

The Guidance warns advisers to look for custody agreements that permit an adviser to instruct the custodian to disburse or transfer assets. That creates “custody” even if the adviser does not actually give those instructions or the advisory agreement with the client does not permit the adviser to do so.

The fix? The Guidance says to send a letter to the custodian that limits the adviser’s authority and to have the client and custodian provide written consent to acknowledge the arrangement.

The way I read that is to fix the custody agreement.

Staying on the custody theme, the SEC staff issued a no-action letter to the Investment Adviser Association on the use of a standing letter of authorization with a client to transfer assets to a designated third party.

The SEC takes the position that a SLOA grants access to the client’s assets. The transfer instructions come from the client, but the adviser is involved so that invokes custody.

To fix that custody problem, the SEC lays out seven steps that need to be implemented and requires a n update to Form ADV Item 9 next year.

One theme is that the SEC is indicating a willingness to provide relief under the Custody Rule when an adviser has taken steps to mitigate the mitigate potential harms to its clients by these Custody Rule foot-faults.

Sources:

The Fearless Girl

The sculpture, titled “The Fearless Girl,” was made by Kristen Visbal and photographed by Federica Valabrega.

State Street Global Advisors conspired in the middle of the night to drop a statue in Bowling Green Park of a girl facing off against the famous Wall Street Charging Bull. It’s part of a campaign by SSGA to emphasize that companies with women in top positions perform better financially.

SSGA manages nearly $2.5 trillion for institutional investors, predominantly in index funds. It has the power to exert enormous influence if it chooses to do so.

“State Street Global Advisors is issuing new gender diversity guidance to the more than 3,500 companies we invest in across three major regions (US, UK and Australia), designed to increase the number of women on corporate boards. As one of the largest investment managers in the world and a significant shareholder we believe that board diversity enhances board quality and effectiveness as it brings together directors with different skills, backgrounds and expertise.”

SSGA is bringing the hammer:

“In the event that companies fail to take  action to increase the number of women on their boards, despite our best efforts to actively engage with them, we will use our proxy voting power to effect change — voting against the Chair of the board’s nominating and/or governance committee if necessary.”

One compliance concern is SSGA’s role as an investment adviser, and therefore a fiduciary. SEC rules give advisers great latitude to set its own proxy voting policy. See Rule 206(4)-6. I would assume from the press release that SSGA has implemented a new written proxy voting policy. I expect that we will see a new description of the policy in the Form ADV filing later this month.

SSGA pulled together research to show that having more women on boards is a better financial choice for companies. MSCI ESG Research’s research shows that companies in the MSCI World Index with strong female leadership generated a Return on Equity of 10.1% per year versus 7.4% for those without (as of September 9, 2015, measured on an equal-weighted basis)

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