New SEC executive's background could bode well for fund industry

Former portfolio manager brings insider's knowledge to issues like 12(b)-1 reform

Jan 23, 2011 @ 12:01 am

By Jessica Toonkel

The Securities and Exchange Commission's appointment of Eileen Rominger, an 11-year veteran of Goldman Sachs Asset Management, as its director of investment management marks the first time that the SEC has named an industry executive with no legal background to the position.

Fund executives and observers are optimistic that her appointment could mean that the SEC will take into account the practical needs of the industry when enacting reforms, particularly related to 12(b)-1 fees and money market funds.

Last week, the SEC said that Ms. Rominger, 56, will start at the commission next month, replacing Andrew J. “Buddy” Donohue, who left in November.

She retired as chief investment officer at Goldman Sachs Asset Management in December. Before that, Ms. Rominger managed equity portfolios at Oppenheimer Capital LLC and overall has more than 30 years of portfolio management experience.

“We seek proven leaders with the right combination of experience, expertise and commitment to fulfill our investor protection mission,” said John Nester, an SEC spokesman.

Ms. Rominger's appointment demonstrates that SEC Chairman Mary Schapiro is responding to outside criticism that the commission has been “too insular,” said Barry Barbash, former director of the Division of Investment Management and now a partner at Willkie Farr & Gallagher LLP.

“Chairman Schapiro was looking for a non-lawyer because she recognized that so many of the rules that need to be done by the division will have significant implications for the industry, and some business expertise will be crucial,” he said.

Fund executives applauded the appointment of a non-lawyer to the post.

“There are a lot of lawyers at the SEC, but this is an investment management position, and wouldn't it be nice to have someone who knows about the investment management business?” said one fund executive, who asked not to be identified.

Specifically, observers think that under Ms. Rominger's leadership, the Division of Investment Management may look at 12(b)-1 reform in a new light.

“Someone familiar with the fund industry will at least be more sympathetic with some of the claims and challenges that executives have brought up around 12(b)-1 reform,” said Russel Kinnel, director of research at Morningstar Inc.

Under the SEC's 12(b)-1 fee proposal, fund firms could charge a “marketing and service fee” of up to 0.25%. Anything above that amount would be deemed an “ongoing sales charge,” which would be limited to the highest fee charged by the fund for shares without marketing and service fees.

The proposal also would allow fund companies to create a new class of shares through which broker-dealers could set their own sales charges on mutual funds. The comment period on the SEC's 12(b)-1 proposal ended Nov. 5 and generated more than 1,000 letters.

One major criticism of the proposal made by industry groups is that the SEC needs to address the 12(b)-1 issue in the context of all the other regulations associated with Dodd-Frank. Indeed, many ob-servers said that the SEC has to examine 12(b)-1, as such fees would be affected by a universal fiduciary standard of care.

Under Ms. Rominger, it is likely that the SEC may review the proposal in light of the practical needs of the industry, said Joel Goldberg, a partner at Stroock & Stroock & Lavan LLP. He was the director of the Division of Investment Management in the 1980s.

“Historically, the SEC would use the Investment Company Act [of 1940] to deal with conflicts of interest in the investment management industry,” Mr. Goldberg said.

For example, with the 12(b)-1 proposal, the SEC started with the premise of “what is permitted under the Investment Company Act,” he said. “Now it may look at what would work best for investors and the industry, and we will worry about a rule that permits that after we decide where we want to be.”

In a statement, Investment Company Institute president and chief executive Paul Schott Stevens applauded Ms. Rominger's appointment.

“Her qualifications will very effectively serve the interests of America's mutual fund investors and the mission of the SEC more broadly,” he said.

Money market fund gurus are also hopeful that Ms. Rominger will support the industry's position on money market reform.

Last year, the President's Working Group on Financial Markets proposed eight reforms to provide greater stability in the money market fund industry. Among those proposed reforms was allowing money market funds to have a floating net asset value.

Comment letters from the fund industry — including one from GSAM — attacked the proposal.

The ICI has proposed an industry-sponsored backstop that would provide liquidity to money market funds in times of severe market conditions.

Although Ms. Rominger wasn't in charge of money market funds at GSAM, the Goldman unit is one of biggest managers of such funds in the U.S., with $138 billion in money market assets as of Dec. 31, according to Crane Data LLC.

“I don't know which was better news for the money fund industry — that a GSAM executive was named head of the division or that Donohue left,” said Paul Crane, co-founder of the money market research firm, noting that Mr. Donohue kept the idea behind the floating NAV alive despite industry opposition.

Some fund executives are concerned, however, that since Ms. Rominger isn't a lawyer, she may be easily swayed by the attorneys at the SEC, said one industry official who has spoken to fund executives.

E-mail Jessica Toonkel at


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