ICI leaders share their thoughts on how the Institute and the fund industry have navigated the COVID-19 crisis, what they’ve learned from the experience, and where the industry might go from here.
COVID-19 has ushered in a new everyday reality for the fund industry. But the early weeks of the crisis, when we saw those extraordinary events in the financial markets—they feel like a long time ago now.
Susan, take us back to those hectic weeks in March. How did ICI engage with policymakers to support members and their shareholders during this uniquely challenging time?
Olson: Those early weeks were unlike anything we had ever been through—and they certainly came at us fast. But our approach didn’t stray too far from how we’ve handled other challenging situations.
By that I mean, huddling with members to discuss what they were seeing in the markets—what funds and their shareholders were experiencing—and then meeting with policymakers to share that on-the-ground perspective.
This approach guided our engagement with senior officials at Treasury and the Federal Reserve Board, which helped inform their efforts to calm the markets. Same for our discussions with the SEC [Securities and Exchange Commission] and staff, which helped us secure relief to give funds another tool to manage their liquidity, just in case they needed it.
Looking back now, would you consider ICI’s efforts here a success?
Olson: Absolutely—and that’s a credit to the regulators as well. Without their availability, their openness—without their willingness to engage in timely and fulsome communication—we wouldn’t have been able to supply them with critical data and insight in real time. It was an intensely stressful few weeks, but I know it wasn’t just us who were feeling the pressure.
Bergé-Vincent: Right. Here in Europe, we were engaged with policymakers in a wide range of areas. But none more important, I think, than our work to keep financial markets from closing in response to the volatility triggered by the pandemic and the shutdowns of economies.
As the crisis ramped up, we stood shoulder-to-shoulder with other market participants against calls for the markets to close, and led a global effort urging policymakers to commit publicly to keeping them open.
Our thinking here was that such a commitment would assure citizens and businesses that they wouldn’t lose access to funding when they needed it most. And we’re grateful that, in the end, not a single European country closed its markets.
Say a major market had closed—what was at stake for our members?
Bergé-Vincent: A lot. Funds wouldn’t have been able to value their portfolio securities fairly, which would have forced them to suspend redemptions and created challenges for retail investors. That’s a much bigger problem than any that policymakers could have solved by shutting a market down.
What about supporting members’ own responses to the crisis? ICI was quite active there as well.
Burns: Very much so. Every week—and often more frequently than that—our committees were holding calls for pretty much every area of the industry. Operations, law, the risk officers, the compliance folks—everyone. At times we had several hundred people on a single call—from firms of every size and style you can think of.
Having this holistic view of the fund complex—of the fund business—ensured that our support would reach the entire membership, not just parts of it. Plus, in working with other trade groups, we were able to minimize any bottlenecks that might have disrupted the transaction process or kept the delivery of services to shareholders from running smoothly.
Olson: I would add that our frequent member surveys also played a key role here. Members told us regularly that having a broad understanding of the challenges brought on by the crisis—and responses to it—helped them better assess and improve their operations and compliance efforts.
Why do you think you were able to draw such robust participation?
Burns: You know, members have long turned to our committees as a place for practical, productive discussion to enhance operations for the benefit of fund shareholders.
In times of crisis, this type of forum becomes even more critical. And I think so many folks joined, one, because they were eager for information to bring back to their firms, and two, because they wanted to be a part of the regulatory and operational solution themselves—and turn this information into action.
Let’s talk more about that. Members managed to move nearly their entire staffs from office work to remote work—pretty much overnight. And in the months since, they’ve been able to continue serving their shareholders with little or no disruption. How have they done it?
Burns: Well, most members went into the crisis with two key advantages: some staff already working remotely, and really, really strong business continuity plans developed over years.
That foundation was important. And from there, members have just been incredibly thorough in supporting employees. Arranging to have equipment delivered, creating tip sheets for managing a home network, strengthening their data security—things like that.
Data security has been huge.
Burns: You’re telling me. Our members are always working with highly sensitive information, and they never stop working to ward off cyberattacks.
But the number of attacks we’ve seen since the crisis hit—the sophistication of them—it’s all been on another level. So members have had to dedicate an enormous amount of energy and resources to shore up their cyberdefenses, get them in place at people’s homes, and reinforce sound cyberhygiene practices among their staffs.
About 90 percent of the industry is working from home now, right? Why not everyone?
Burns: Some critical shareholder servicing functions just can’t be performed from home. Things like accessing equipment to manage on-site systems, processing mail, and handling checks. Printing shareholder documents, too, which most members delegate to a third-party service provider.
We and our members reached out to states to ensure that, as governments ordered lockdowns, staff who perform these activities would be classified as “essential,” so that they could legally get this critical work done.
I’d like to now fast-forward some, and zoom out a bit beyond the fund industry. Because even as markets have calmed, economies continue to reel.
Patrice, that’s certainly true in Europe, which is suffering its worst economic shock since World War II. What role can regulated funds play in Europe’s efforts to restore economic growth, and how is ICI engaging here?
Bergé-Vincent: Well, we’ve been saying it since long before the pandemic. The key to unlocking the EU’s economies is a robust capital markets union—one that promotes a greater role for market-based financing and encourages more retail-investor participation.
The same is true now, only the need is even more urgent. And regulated funds—because they’ve proven so useful for growing household savings and channeling investment to businesses—are well positioned to address this need.
We’ve emphasized these points to the European Commission in recent months. And the Commission’s new Capital Markets Union Action Plan would suggest that our recommendations haven’t gone unnoticed.
A lot remains to be done, though. The EU’s recovery plan relies for the time being on financing from bank loans and taxpayer money. Those are important sources of financing—don’t get me wrong—but they alone won’t be nearly enough to deliver a lasting recovery. So our advocacy looking forward will center on showing policymakers why increased retail investor participation in EU capital markets through regulated funds is the missing piece.
This idea of looking forward—let’s explore that. When the pandemic is behind us, do you expect anything in the fund industry to revert to the pre-COVID normal? Or is there no going back at this point?
Bergé-Vincent: My hope is that we’ll be able to return to in-person meetings with policymakers—in addition to having virtual meetings—and that this will foster even richer engagement with them. Our virtual meetings with policymakers have been going very well, but that’s in part because of the wealth of relationship capital we’ve built with them over time.
The longer the pandemic continues, the more we’ll have to draw from this capital. And at some point, I think, we’ll have to build it back up with some of the in-person interaction we’re used to.
Olson: We’ve experienced many benefits from virtual meetings, including the ability to involve more people and schedule meetings for members and policymakers more easily. So we’ve learned wonderful lessons that we’ll apply as we move forward.
One thing I do expect to be permanent is this greater appreciation for electronic delivery. Some investors will always prefer physical documents. But for most, the simplicity, accessibility, and versatility of electronic delivery will come as very welcome improvements.
Well, wherever we end up on the other side of all this, it certainly will have been a learning experience. And that note—learning—is actually how I’d like to wrap up.
You’ve all worked in and around the fund industry for quite some time, and navigated ICI through more than a few challenges. But I have to ask—what has this crisis taught you about the industry?
Burns: What I’ve learned is, the industry is even more resilient than we thought. Thinking about that shift to remote work, few of us had ever contemplated something at such a scale and speed. And I have to admit—over that March weekend, I wasn’t sure how smoothly it would go.
Yet everyone—and I mean, everyone—really stepped up to ensure that service to shareholders wouldn’t suffer. Fund complexes have learned so much about their capabilities since, which I think will help shape their approach to business over the next five or 10 years.
Olson: It really was an amazing feat. But you know, Marty, I actually can’t say I was surprised at how smoothly the transition went. The learning experience for me was more about how productive the industry could be after the transition.
Historically, there has been some skepticism about how engaged remote workers actually are, but the success we’ve seen over the past six months has been a real eye-opener.
Bergé-Vincent: It’s kind of like everyone in the industry has been put through this big test—a test of tests, if you will. The fact that we’re still going strong should give us all confidence that whatever challenges come our way, we can overcome them. Together, we are stronger. That’s the big lesson for me.
Olson: And I think that’s heartening. Over the past 80 years, funds have evolved constantly to meet the needs of their shareholders, but the industry had never had to navigate something like this.
Now, we know that wholesale change doesn’t have to be scary. It doesn’t have to worry us. Instead, it can be a spark for serving shareholders even better in the future.
ICI Chief Operating Officer Donald C. Auerbach sat down to discuss what the Institute is doing to support ICI staff, ICI members, and the hundreds of millions of investors they serve globally through the challenges of the COVID-19 pandemic.
How did members and ICI staff adapt to the unforeseen challenges that COVID-19 presented virtually all organizations?
As COO, part of my job is to ensure that our departments and managers had the tools and support they needed to facilitate the transition to remote work as seamlessly as possible, while also continuing to provide our members with the high level of support and expertise they expect from ICI.
In a matter of days, ICI and its members moved nearly their entire staffs from office work to remote work—with minimal or no disruption. Our employees did what we thought would be a one-day test of remote work on March 13—but then we haven’t been back to the office since. The transition was largely seamless for the organization.
Our lawyers, economists, operations experts, and other professionals normally spend a lot of time meeting together in the office, collaborating on various projects to support our members. Our investment in technology and the dedication of our employees has allowed our staff to continue this cooperation virtually. Maintaining this ICI culture, where cross-functional collaboration thrives for the benefit of the membership, is the major challenge and primary focus for our managers while we’re virtual.
We do look forward to getting everyone back together in person as soon as it’s safe to do so. Of course, nobody knows when that will be, so we are scaling up for the “new normal” in whatever form that ultimately takes. Importantly, our interactions with ICI members and committees and our ability to be on call for our members has not suffered. In some cases, including committee meetings and conferences, we have seen a higher level of participation and interaction virtually than we might expect to see in person.
How did ICI manage to be prepared for this shift in how we support our members and the investors they serve?
While we never envisioned an event like the COVID-19 crisis, our planning over the years has certainly come into play as the organization was forced to revamp the way we work and serve our members almost overnight.
Our commitment to investments in technology, which long preceded my time as COO, and the skills of our IT professionals, have really paid off for the organization this year. This, combined with our focus on business continuity planning over the years, allowed us to adapt the delivery of our member services to the realities of the workplace during the COVID-19 crisis.
Like our members, we are continuously focusing on upgrading our information security. We are also entrusted with member data that underlie our statistical and research efforts, and we have a duty to keep that safe and secure. As part of these efforts, we worked with an outside auditing firm, Deloitte, to review all of our security procedures and protections. We obtained a SOC 2 Level 1 certification—the gold standard in measuring the strength of information security controls. ICI and Deloitte have worked through more than 80 internal controls to ensure all requirements are documented and reviewed, and that they meet AICPA standards for SOC 2 certification.
COVID-19 triggered extraordinary events in the financial markets and members are under unusual pressure. Tell us about the value of ICI membership in these circumstances.
One of the benefits of ICI membership is that it gives member firms unlimited access to key resources to augment their own in-house capabilities and knowledge bases. These include:
- Experienced legal, compliance, and policy experts with years of experience working with member firms, regulators, and the policymaking community.
- Access to ICI’s historical data in benchmarking products and new statistics.
- Expertise, resources, support, and best-practice service in industry operations. Many on our operations staff have years of industry experience and are well-equipped to assist our members during these unprecedented times.
- The deep global experience of ICI’s international program, ICI Global, which benefits both member firms operating on a global basis and those that are primarily US-focused.
- The opportunity to participate in one or more of our 70-plus US and global committees. Members’ participation on our committees brings invaluable insights to inform ICI’s policy advocacy and to help shape industry activity. I promise you will come away feeling that you’ve gained knowledge that can apply to your firm.
During the pandemic, we’ve made a point of making ICI even more accessible to our members. For example, members have access to the cell phone numbers of ICI staff as they work remotely during this time of crisis.
We’ve conducted frequent outreach, calls, and virtual meetings with member committees, providing a forum to share experiences in addressing COVID-related challenges, including business continuity and technology challenges, and to identify issues to raise with policymakers and regulators.
As ICI continues its efforts to support member funds and their shareholders, I have been gratified to see our collaborative culture in action.
In the wake of the market turmoil of March, ICI’s leadership recognized that policymakers would focus attention on the experiences of a wide range of market participants, including regulated funds.
In June, the Executive Committee of ICI’s Board of Governors established the COVID-19 Market Impact Working Group, a group of senior industry executives charged with examining the causes of the 2020 market turmoil and the experiences of regulated funds. Their goal was to help provide a sound, empirical basis for any future regulatory discussions or other responses that could affect regulated funds and their investors. A second group, the Money Market Working Group, was formed to bring in a wider range of perspectives from sponsors of money market funds.
In October, ICI began issuing research papers that together will form the Report of the COVID-19 Market Impact Working Group. The first paper, “The Impact of COVID-19 on Economies and Financial Markets,” examines the epidemiological, economic, and policy origins of the market turmoil. It finds that the market dislocations represented a liquidity crisis driven by the economic response to a global health crisis—unlike the credit crisis that roiled markets in 2007–2009. The working group believes it is critically important that policymakers understand and take account of this difference in determining whether policy approaches rooted in the experience of the global financial crisis are or are not appropriate in response to the COVID-19 crisis.
Subsequent papers examine the experiences of exchange-traded funds (ETFs), money market funds, Undertakings for Collective Investment in Transferable Securities (UCITS), and bond mutual funds. Each paper carefully reviews a wide range of data—covering assets, flows, indicators of market stress, and the behavior of investors and intermediaries—to determine the nature and sequence of events in March.
The papers generally find that regulated funds did not trigger market turmoil. The ETF paper, for example, shows that the structures for creating, redeeming, and trading ETF shares—including ETF issuers, authorized participants (APs), and ETF liquidity providers—proved their resilience during unprecedented market volatility. ETFs also acted as a source of stability and an important source of price discovery in fixed-income markets by providing investors with real-time views on the costs of liquidating the underlying bonds.
The working group’s examination of money market funds finds that, contrary to statements by some commentators, these funds did not cause the COVID-19 market turmoil. Data demonstrate that there were serious and widespread dislocations in short-term credit and other fixed-income markets before institutional prime money market funds experienced redemption pressure. Evidence shows that the 2010 Securities and Exchange Commission (SEC) reforms improved the resiliency of prime money market funds. The paper also finds, however, that one of the SEC’s principal 2014 reforms—giving fund boards the option to impose liquidity fees and gates if a fund dipped below the 30 percent weekly liquid assets threshold—may have intensified flows from institutional prime money market funds instead of moderating them.
ICI is providing each paper in the report to a wide range of regulators and policymakers in jurisdictions around the world to help shape the dialogue on policy responses to the COVID-19 market turmoil.
With the sweeping changes ushered in worldwide by COVID-19, business continuity planning (BCP) took precedence in the work of ICI Operations this year. Since the beginning of March, the BCP Subcommittee of ICI’s Technology Committee has met weekly online with a record number of dedicated member participants.
By collecting insights from across the industry about fast-changing circumstances, the BCP group helped members navigate the many unknowns posed by the pandemic. In all, fund industry operations performed well amid the uncertainty and abrupt work-from-home transition, a testament to years of scenario and resilience planning.
To help members gauge their own decisionmaking, ICI Operations’ Technology Committee and BCP Subcommittee issued two surveys to members in early March about their travel and in-person meeting restrictions. After it became apparent that working remotely would not be temporary, these committees collaborated with the Chief Compliance Officer Committee, to send a more comprehensive third survey to chief compliance officers, examining the considerations involved in a return to the office.
As spring turned to summer and then fall, the BCP group continued to monitor conditions that could affect firms’ work arrangements: the impact of school closures or reopenings, the availability of public transportation, testing and contact tracing policies, office redesign, potential permanent work-from-home positions, the resumption of business travel, the prospects of resurging infections, and more. Throughout, ICI has helped members communicate their experiences with one another.
The industry will now also be considering new business continuity scenarios never envisioned before, including the prospect of a second emergency coinciding with the pandemic. By working together with members, the BCP group will continue to address the evolving requirements of an uncertain world.
For more information, please visit www.ici.org/continuity.