Collective investment trust platforms have been around for decades, but the Securities and Exchange Commission is beginning to have questions about whether investors in the funds are sufficiently protected.
The trust accounts, which allocate pooled assets to individual investment managers, are exempt from the Investment Company Act of 1940, removing the banks that sponsor them from the reach of the SEC. But Andrew “Buddy” Donohue, director of the agency's Division of Investment Management, said today that the commission is looking for ways to claim jurisdiction.
“The collective funds are out there marketing (themselves) to advisers, saying ‘give us your clients, you manage and we'll provide the back office,'” Mr. Donohue said at the Practising Law Institute's investment management program in New York.
He added that the SEC “can't get into the bank, but I can get into the advisers. It's important for me to see if the banks are using their exemption properly … or merely renting a space (to advisers) inside a trust company.”
Mr. Donohue said examining the trusts is a priority this year because the platforms are offering a growing array of investment choices and becoming increasingly popular as retirement plan investments. Assets in the vehicles grew to more than $1 trillion at the end of the second quarter of 2009 from $780 billion in 1989, he said without attributing the source of the data.
Asked by Barry Barbash, a former director of the commission's investment management division, whether he doubted the ability of bank regulators to enforce protections for individual investors, Mr. Donohue declined to comment. “I do like our regime,” he said of the SEC's emphasis on disclosure and other prophylactic practices.