In the midst of the worst market collapse since the Great Depression, John Rogers took the helm of the CFA Institute in January, succeeding Jeffrey Diermeier. This weekend, about 1,000 portfolio managers and financial analysts from around the world will flock to the CFA Institute's annual conference in Orlando to try to make sense of the crisis and to divine ways to invest going forward.
Mr. Rogers brings a global perspective to the job — particularly important because nearly half of the CFA Institute's 95,301 members live outside the U.S. and that's where the educational, research and advocacy group has experienced its greatest growth in recent years. Mr. Rogers spent the first 13 years of his career in Asia, primarily in Japan, eventually serving as president and CIO of Invesco (IVZ) Asset Management (Japan) Ltd. He was promoted to CEO and co-CIO of Invesco Global Asset Management and, in 2000, was named president and CEO of Invesco's worldwide institutional division. He left the Atlanta-based manager in 2007 to set up Jade River Capital Management.
Mr. Rogers admits he was “not a particularly active member” of the CFA Institute or its predecessor organizations, “so I am paying my physical dues now, paying back and paying it forward now.”
The Obama administration is drafting a regulatory overhaul that would subject many alternatives managers to regulation. What is your view? It's important to note that the situation that we're in was not, per se, caused by alternative asset managers — by hedge fund or private equity managers. Separately, the reality is that alternative asset managers have grown significantly as a class of participants in the marketplace, both in terms of size and activity and acceptance by institutional investors ...
(T)here comes a time when financial institutions, no matter what their activity, reach a level of prominence where a higher degree of transparency (and) formal registration and some degree of regulation is appropriate. With success comes responsibility. And with success comes some responsibility for a higher degree of scrutiny. And we would be of the view that that time has arrived ...
There have been a number of initiatives that have been announced by industry associations and industry groups that you're aware of. That's a good step, but in our view that's not enough. For example, one provision of the proposed self-regulation is what we would call “comply or explain.” So if a manager feels its activities are outside of the predefined list of alternative investments arenas, they don't have to comply with the regulations but they have to explain why. That to us is simply not an appropriate way to handle this. So we are in favor of a higher degree of scrutiny, a higher degree of transparency of activities — without the ability to opt out.
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The administration also would create a regulator to monitor threats of systemic risk. Will it work? We would not believe that it's possible to eliminate systemic risk. Any system is going to have risk. The notion that a regulator can prevent risk is simply doomed to be less than successful. But we do think it's appropriate to monitor and understand and then to seek to influence behavior around unusual concentrations of activity that can lead to systemic risk.
It's hard to know exactly how and where to do this, but one proposal that I think is interesting is to use the resources that the Federal Reserve has ... to observe and then to exert some influence ... By definition, we don't know where the next excesses will come from, and so the organization that does this monitoring has to have a very wide net of information gathering.
The question then becomes, what's done with that information. That's where the difficult questions will be posed.
The SEC has been lambasted for failing to uncover Bernard Madoff's fraud. But should it be the SEC's job to police these managers or should they let sophisticated investors fend for themselves? There's an enormous amount of pressure on (the SEC) to define more specifically (who is a sophisticated investor) because at what point is it material? If a manager accepts money only from institutional investors, does that exempt them from SEC oversight? Well, clearly it doesn't. If you claim to be an alternative manager, does that exempt you from oversight? It shouldn't. There needs to be clear standards that are set for all investors. But because this is a free market you can never remove the responsibility of investors to do their own due diligence. And we go back to one of the basic rules of investment: “If you don't understand it, don't buy it,” at every level ...
We're in favor of stronger enforcement caps within the SEC, higher levels of investor education and manager code-of-conduct standards.
Hasn't this round of scandals tainted investors' view of managers? By the nature of the news, you only hear about the ones that have gone wrong. Of the many, many tens of thousands of investment advisers ... you have a very large sample size and there are a small number of high-profile failures. So I don't believe that the industry as a whole has been tainted. ...
Our mission is to educate the current and future generations of investment professionals, not only from a classical book-learning standpoint but also from a practice standpoint — ethical behavior on behalf of clients, putting the clients' interests above all others. So there are thousands and thousands of success stories that you don't hear about, where clients' interests have been looked after by charterholders and by members in a quiet way, day after day, through ups and downs in the markets. The news is disturbing and we need to do something about this, but I don't think the industry as a whole has taken a hit.
The administration has imposed some restrictions on certain financial firms' executive pay and there are calls to extend executive pay restrictions to all companies. Where do you think this is headed? I don't know where it will all end up ... Our position on this debate is that, foremost, it's the responsibility of the board of directors of the public company to determine and administer executive compensation that's appropriate and is in the interest of shareholders. Shareholders have the right, through their proxies, to speak through the election of boards of directors.
We've outlined a number of enhancements or minimum standards that we feel are appropriate for public companies to consider. They include things like “say on pay.” We believe that shareholders should have the opportunity to cast an advisory vote on compensation policies. We're opposed, for example, to golden parachutes and large severance arrangements that can be triggered purely on the basis of non-performance in the short term. We are in favor of making the long-term non-cash compensation formula more transparent and more tied to true economic performance ...
But ultimately, we believe it's the responsibility of the board, it's not the responsibility of the regulator, to determine compensation.
With the increased government involvement, some people have raised the prospect of creeping socialism. Is this a threat to capitalism? There are a lot of labels being thrown around. We are in an extraordinary environment. It has called for some extraordinary measures and history will judge on whether those measures worked.
The facts are that governments, by rescuing financial institutions — or putting it another way, by inviting them to be rescued — have become major shareholders or bondholders in these organizations. Under the rules of the game as currently written, they do have rights as a result of that. ...
And they do have the ability to exercise those rights and vote those rights ... My personal hope is that this is entirely a transitional state and we can get government out of the business of being shareholders in our key institutions and back in the business of governing.