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Educational Alpha: Care of Wallet

August 29, 2023

By William (Bill) J. Kelly, CAIA, the President & CEO of the CAIA Association.



Put ‘Care of Wallet’ into the gracefully aging Google search engine or its parvenu ChatGPT, and you will learn how to treat the soft leather, avoid overstuffing, and even ways to protect it against modern-day cyber theft. Helpful but off-point relative to ‘Share of Wallet (SOW)’. Drop the latter into your favorite search tool and the overarching narrative centers around a metric as to how much of the spending said business can capture, along with strategies as to how to capture even more. Despite the commercial appeal of a SOW analysis, my (jaundiced?) view is that asset-gathers should forever ban this anti-client approach.

Last week a sigh of relief could be heard amongst those who sought fairness around more unfettered access to their share of the client wallet in the face of the now de-fanged proposals for private market reforms brought to us by Gensler & Co. Full disclosure: I am not a student of the inner workings of the initial proposed rule, nor have I read the entirety of the 660 pages of the final print that came out on August 23, 2023. Notable (IMHO), a word search of that tome shows 737 occurrences of the word ‘disclosure’, ‘fair or fairness’ appeared 223 times, and ‘transparency’, 106 times. However unintended and I am certain overreaching some of the consequences might have been, the end goal always seemed to be more about care than share of the client wallet, and that was sought via more disclosure, fairness, and transparency. I hope that triumvirate survived the onslaught of comment letters.

The comment letters themselves proved to be quite instructive. Most of the writers seemed to be those parties representing the GP side of the house and said letters seemed to have an abundance of pagination, footnoting, and legalese relative to the smaller and more succinct number that were submitted by the wallet owners (the LP’s). I would encourage the SOW-seekers to go back and read what the client had to say: TRS, OPTrust, LACERA, Canadian Pension Plan Investment Board, Treasurers for the States of Rhode Island and Illinois, University System of Maryland Foundation, APFC, Illinois State Treasurer, CalPERS, Illinois Federation of Teachers, NCPERS, Ohio Federation of Teachers, NYSIF, AFT New Mexico, AFSCME, OPERS, Minnesota SBI, NEBF, NYC Office of the Comptroller, Seattle CERA, AFT and NEA, LACERS, LAFPP, and New Mexico State Investment Counsel. The preceding is the entirety of the letters that came from self-identifying institutional LPs — and knowing what the client thinks is never a bad thing.

Not all these letters were in full support of all the SEC’s proposals, but the majority struck a decidedly different balance than the GP side of the ledger. One of the true hot buttons was the standard for negligence, and many LPs seemed to point to the codified responsibilities of the fiduciary, and there should never be a hedge against the duty of care and loyalty owed to the client (and their wallet). In several cases the LP letter writer referred to the ILPA comment letter which states that “ILPA supports a strong fiduciary standard and substituting “negligence” with “gross negligence” provided that ordinary negligence applies to LPA or side letter breaches.”

Time will tell whether a fair compromise was reached, and by public proclamation it is certain that we have not heard the end of (GP) challenges to the final rule. Let us also not forget that we are at the dawn of democratization where less sophisticated investors will now be looking for fair and transparent access, pari passu, to the institution.

Mind the omnipresent grey space between regulatory/legislative fiat, and a culture that cares, as you dispense your services and attendant responsibilities for what’s in their wallet.

Seek education, diversity of both your portfolio and people, and know your risk tolerance. Investing is for the long term.

About the Author:

Bill Kelly, CAIA, has been a frequent industry speaker, writer, and commentator on alternative investment topics around the world since taking the leadership role at the CAIA Association in January, 2014. Previously, Bill was the CEO of Boston Partners and one of seven founding partners of the predecessor firm, Boston Partners Asset Management which, prior to a majority interest being sold to Robeco Group in Rotterdam in 2002, was an employee-owned firm. Bill’s career in the institutional asset management space spans over 30 years where he gained extensive managerial experience through successive CFO, COO and CEO roles.

In addition to his current role, Bill is a tireless advocate for shareholder protection and investor education and is currently the Chairman and lead independent director for the Boston Partners Trust Company. He has previously served as an independent director and audit committee chair for ’40 Act Mutual Funds and other financial services firms. He is also currently an Advisory Board Member of the Certified Investment Fund Director Institute which strives to bring the highest levels of professionalism and governance to independent fund directors around the world. A member of the board of the CAIA Association, Bill also represents CAIA in similar capacities via their global partnerships with other associations and global regulators. Bill began his career as an accountant with PwC and is a designated Audit Committee Financial Expert in accordance with SEC rules. Follow Bill Kelly on Twitter @CAIA_BillKelly