Walkner Chollion's I'm Joe Webbert and I'm Eric Belchernas. Eric, you do some conferences. You recently went to the conference on Emerging Trends in Asset Management, and you seem to think you walked out of there as a really big deal.
I walked out of there a lot smarter. A lot of times when I do a conference, I want a panel. I don't go for the whole thing. Yeah, but this one seems special. I got an email from the current director of Investment Management. It's their first conference. They had seen me do a book presentation about a year ago, and they were like, this guy'd be good to give some sort of, you know, alternative take on the ETF market.
There were several people there, a lot of lawyers and a lot of people from the SEC.
Several people like there are like five people there, and one of them happened to be Gary Ginsler, the head of the SEC.
Yeah, he spoke. So that's why I went because I wanted to see him speaking some of other people. So I went and just stayed the whole time, and I was at the end, but I soaked up a lot and I wanted to sort of somehow get this onto the podcast, and I found the way to do that because I met Dalia Blass, who used to be the head of Investment Management at the SEC, and I got to meet her at dinner a little bit more and
we expanded. I saw her on the panel and some of the things she was talking about our stuff we write about all the time. So I thought we could dive a little bit into what the SEC does some of the current topics that were brought up at this event, because this is the first one, and you know sc' is not usually this open, but they were pretty open. They're trying to, i guess, be a little more available to people and say exactly what they're doing. And I thought it was a good time to check in on
all this. And she has a very interesting background and I had seen, you know, and heard of her obviously over the years, but finally got to meet her, and believe it or not, she accepted my invitation to join the podcast.
So we're gonna speak with Dalia Blass, who is the former SEC Division of Investment Management head. After that, she went to Blackrock where she was head of external Affairs, and now she's a partner at Sullivan and cremwell this time on trillions. Dahlia Bluss, Dahlia, welcome to Trillions.
Thank you for having me.
So how was Eric received within this conference that he seems to think everybody really cared about what came out of his mouth, How was it really, honestly truthfully?
So, Eric had a really good presentation, aside from the fact like a lot of bar charts whatnot. Sorry Eric, I wasn't paying attention to those. But he explained some really complicated principles around ETFs and ETF investing in a way that really resonated, very very plain English, and was talking about the trends in the space that you know,
we're really interesting. I think the most interesting trend you talked about, Eric is how much the AUM, the assets of the management for ETFs frankly have like doubled at least since the ETF fruls. So that made me happy to hear it that since you know, I was the director when we did the ETF rules. So great, you know, great stats and it was just really understandable, which was great.
And one quick thing on that I found when Gary Genser spoke, he was going through several topics. He'd be like private equity, we're looking at this. We need to be careful about this. Then he'd be like, money market funds, we're looking at this, We're gonna be careful this. It seems like ETFs got a pretty much a pass. He basically said, you know, ETFs, look, they're great. They brought diversity and convenience to investors, and he kind of just went on, So I'll give you some credit for that.
I guess the ETF rule maybe cleaned up all the things they were looking at, but it didn't seem like that was on his radar compared to the other things.
I think it was a product lineup that was sort of like, this is working really well. It worked really well in March twenty twenty, thank you so much, let's move on to other areas. And it was heartening to hear that, quite frankly, because I think you would recall for years before twenty twenty, it was always that the where's the moment that ETFs will break? Or is the moment ETF's That was always the narrative, So it was it was really heartening to see that this is a
product that actually was a pressure valve. In March twenty twenty.
Yeah, and I think this was the one. March twenty twenty is when I think all the doubters, the some worry articles kind of were like, okay, they're good because you're right. There was especially fixed income ETFs. There was all this worry about it. And then when the FED stepped in to buy them, I think that really sealed the deal. It's like, well, the Fed's going to use them, they must be okay.
Yeah, there was a sense of the ETFs we were helping in March twenty twenty. As I said, it was like a pressure valve release sort of, you know, mechanic if you will, And ETFs played that role really well and the government acknowledged that. So it was I agree with you in his speech. It was really interesting how he dealt with ETFs compared to the other pieces that he talked about.
So you got to the sec September of twenty seventeen before times how much how much did you know about ETFs when you got there.
So that was my.
Third tour of duty because we speak military terms in the government, so believe it or not, I was the staff attorney that did the original ETF proposal in was it seven eight and it took a second try to get it to finals. So I've lived ETF, said the Commission since a very long time ago.
Okay, all right, she like tour of duty. I mean when you do that, is that is that for real? Is it like how we talk about it?
It is it's your tour of duty in the government, even when you're in civilian service. So that was that was my third tour in twenty seventeen.
Yeah, if you got into ETS, I feel like if you got into ETS before twenty ten, especially two thousand and eight, you're like an og kind of you know, you're not oog like you know, Bob Tole and those guys and Nate most but second level because the industry was only like four hundred billion back then. Again today's seven trillion.
So when you first started to work on ETF stuff at the SEC were what were the concerns that you were wrestling with then?
So you know, ETFs, as Eric mentioned, it was a growing space, but nothing nothing compared to where it was in twenty eighteen when we reproposed. A lot of it was still index. Some of the actives were starting the conversations around the non transparent, the veiled ETFs but there were none on the market at all. The questions there were more, and if you look at the old proposal, we tried to enshrine the index ETF versus active ETF.
It was just simplistic, if you will, compared to where we ended up after a lot more experience with the product in the marketplace.
Let's go into the nineteen forty Act a little bit. This is the main act that governs a lot of the fund's world, the nineteen forty Act. ETFs always needed an exception to the nineteen forty Act. And I guess can you just talk a little bit about how ETFs are structured. I think some people don't realize they're actually they are mutual funds to a degree, they just have this extra exemption.
They're open ended funds. Right, So the act, if you will, has two pieces of the closed ends, the open ends, and the open ends. The feature there is it's redeemable, like I give you back my share, you give me back my money. Right, that redeeable and within a very short time period the statute of seven days.
In reality it's like a day.
The ETF exemptions, which again when you grow in the exemptive application process, and I think that was one of the issues when we did the proposal in eight and definitely when we did the rule making in twenty eighteen that ended up being the final exemptions over time change because the market evolves, So the ETF providers that had the original orders had vastly different orders than the ETF providers that had orders leading up to the final rule. So when you step back and you look at that,
it's not equal marketplace. You know, even though like you know, I'm going to go out and buy an ETF, I'm buying an ETF that in name looks like any other ETF, but in principle could have, you know, vastly different things. So, you know, stepping back and just saying, like, what really is different about ETF appeared to a mutual fund, and what do I need to change? And this is where when we looked at it, we're like, ETF is a redeeable security. We don't need to give an exemption from that.
So when you look at the final ETF rule, the exemptions actually are a lot fewer, a lot cleaner than when you look at any exemptive application that predated that rule. And that's the experience you have and that you can do when you're looking at a rule making, which you can't really do with an exemptive order. It's still like kind of bound by a lot of history behind it, if you will a little.
Bit of history. We learned that SEC kind of helped create the ETF originally after the Black Monday Report. Do people in the SEC appreciate that, A is there any internal pride about creating this whole sort of new way of investing?
So if you're talking about the spiders, which took quite a few more.
And a half years, yeah, Yeah.
The SEC issued this huge telephone book size report that was a postmortive on the eighty seven crash, and in their talk to little bit about well, if there had been a market basking trading instrument that actually had physically backed securities instead of using the futures market in Chicago, this might have not happened.
And AMX looked at that and we're like, we can do that.
Yeah, So I mean, so that's it's not you know, the SEC has actually played a role in innovation. If you look at interval funds by wave example, that was created by the Commission, it was also an SEC creation, right, So and that's that's a really important point, because that's the point sometimes we don't focus on We focus on the SEC being in the administrator of like the forty Act and the other securities laws. We focus on the
SEC being the examiner for compliance. We focus on the SEC being the enforcer.
That's the fun part.
What we don't focus on and perhaps sometimes the SEC and I'm you know, I'm guilty of that, having been you know, inside the building for fourteen years. We don't sometimes focus on on the et the SEC's role in innovation, which which is really really important for a market p as well.
So the ETF rule when it came about what was different about that on your third tour of duty than your previous ones and how did you why did you change your mind to get it to where it ended up.
So you know that as the ETF rule, if you look at it compared to the one that was proposed in OAIT, you know, significantly different. Like just by way of one example, you don't have the index ETF versus the active ETF.
You have the ETF.
You don't have an idea that the ETF is is getting an exemption from being a redeeable security. It's acknowledged that it is redeeable security, it's an open end fund. So these were all things that came with lessons learned the Commission. The staff had had vastly more experienced by twenty eighteen compared to ten years earlier, and the product had grown by you know, leaps and bounds. So there that you know, the thinking had matured, the product had matured,
and it continues to mature. So it's it's maybe perhaps not so good that it took ten years, But at the same time, I think the rule ended up where it is because of the more information and the more experience of staff and the Commission's had with the product.
So let's switch to a topic that came up at the event. This is your panel, and it came up a couple times at the event, which was, Okay, you've got two companies, Blackrock, Vanguard, you could throw State Street in there. We'll call them the big three. They're getting bigger. They sort of more the center focus as it become like a political football because they own so much of
these stocks. I think Vanguard owns about eight or nine percent, Blackrock owns about seven percent of almost every stock in America, and so the question is, like how do we deal with this because they're not getting any small They take in most of the money, so they're going to keep getting bigger. And this was a topic that was talked about, and then what was brought up was, well, the market is sort of working this out because they're going to
decentralize voting and let their shareholders have a say. I guess, from your vantage point as having worked at Blackrock and the SEC, how do you see this playing out over the next ten years.
That's a great question, and you're right. It was a topic in the i AM Emerging Trends conference that I think almost every single panel touched on, which even panels that didn't have that in their title, it seemed to be a topic everybody was interested in talking about. I mean, look, I mean the bottom line is you're here increasingly both policy makers and investors asking for changes in fund voting practices. This is not about like a big two or a Big three, or a Big four, or a Big five
or a big six. It's about index funds and how they're managing their voting. And you know, some policy makers have raised questions about the increasing share of index fund voting and how those shares are being cast. And you have investors today, institutional investors who want just as they choose how their investments are being deployed into the market, they also want to say and how their shares are
being voted in the market. So when you have that and not getting into merits or demerits of any around that, you look at solutions, because solutions are already starting to come about. You have solutions, I think our characterize in three buckets. You have sort of restrictive voting solutions which would put sort of parameters around what index fund managers would or
would not do. You have more transparency solutions which are very limiting, and then you have market based solutions, which I in my opinion at least, I think the market based solutions are the ones that have greater promise. And if we can sort of allow them to evolve and the regulators step in a place of helping the conversations and removing any regulatory barriers, I think you can get a movement in fund voting that would actually read in your to the benefit of all investors.
And so to be let's talk about the rules currently in place. A fund cannot own more than ten percent of company. I think that's the rule in the forty Act, but it doesn't say anything. But a fun complex is the forty Act came out when typically a fund was all the complex had. Now now in the past, you know whatever, eighty years the fund multiplied and now you have they have three four hundred funds. So there's no rule.
And so therefore.
Blackrock and Vanguard could really get bigger own more than ten percent. But that's okay because it's really thirty to fifty million investors, individual investors' money if they decentralize, versus people thinking that And this comes up all the time on Twitter, like it looks like Blackrock and Vanguard have like so much power and it's their money, but it's really a bunch of it's millions of individual investors.
So a couple of things, and number one, the restrictions on ownership. There is like a myriad of things that play here right of where the restrictions come from from federal law, from state law. There is there is a lot going on, but also sort of and you know, I've heard you say and the conference I heard it repeatedly said, you know, people saying a Blackrock Vanguard State Street.
I think it's really important to remember that these are independent entities that invest independently and that you know, invest you know, on the basis of what their clients are choosing for them to invest, So we can't talk about them collectively.
That's something that's really important to note.
The other piece to note is that this is a very large and very diverse industry. You're talking about industry that's well over one hundred trillion dollars globally, well over like maybe one hundred and ten, one hundred and twenty. So when you look at how much they hold compared to that vast global it just gives you a sense of like how big this industry is.
It's very diversified.
A lot of players, a lot of choice in this industry, you know that said as I said, like, there are policymakers and investors who want different solutions when it comes to voting, but it's it's important to look at what is happening and also the benefits that these providers have brought to the to the table when it comes to voting, when it comes to the economies of scale they have created for funds. We look at any solutions in this space, and.
One thing that was brought up by a lawyer from Virginia. She said something I thought was interesting, which is, there's too much demand for the regulatory supply when it comes to some of these issues like climate like the government really hasn't done a lot and so, but there's all this demand built up to do something and it's been put on the asset managers, who you could argue you are getting too much pressure for what their role is in society because of that lack of progress by the
government itself. I thought that was a pretty decent point. That was somebody who was basically trying to say, chill on the asset managers. Okay, they're not going to solve everything here, but if their pressure is huge, and I do think if there was some something done with the laws, this would be there, this wouldn't be as big of a topic. So I do think that's part of a play here.
Well, you've been on both sides of that, right, You've been in the government side, and you've been in the private sector, a publicly traded company, Like how do you thread that needle or how do you think the we should be threading that needle?
So when you look at asset managers, you know, asset managers are looking at their clients, their clients aret of ones that provide the mandates. For the institutional clients, the mandates can be more complicated, obviously, and but for even for retail retail invests on the basi of funds, and funds have very specific mandates and the client is choosing that. So you know, for for asset managers, the first point that the foundation is client choice. Everything else comes from
that choice the client makes. And you have a lot of clients who are very interested in the e SG space and funds that target certain you know, client solutions or certain solutions to very pressing social policies. That is what the client wants, right And so you know, asset
managers are just that they're not the asset owners. They are the asset managers when it comes to the government, you know, where you would look for, what you'd look for as a regulated entity, and in this really complex space, frankly, is clarity. What is the roadmap, What can you do, what can you not do? And have that clarity so that you can fulfill your mission, especially here for advisors as a fiduciary to the clients who are entrusting you with their assets.
Let's talk about ESG related accept the funds themselves. So one of Genser's current priorities, or at least one of his things he's looking at, is ESG ETFs. And I've traveled around, I've worked with our ESG team. There's a huge debate about what you're actually getting with an ESGTF. Some like the biggest one ESGU, which is the one, the biggest one. The holdings look a lot like the S and P. There's a couple of things taken out, but it's very close, just a little tilt away from
the index. Then there's ones that go more hardcore. We actually have a scoring system. We try to help investors. But how much is naming an issue with the sec when a product comes in, how much do you need to worry about what it holds and what it does versus just sort of letting a lot of freedom in what you name it and what you hold as long as you spill it out in the perspectives.
So like, without getting into any any specific funds or or or fund names, I'm not a portfolio manager, and you don't want me to be.
A portfolio manager.
When you look at ESG, the term itself, in my opinion, is a problem. It's it's it's very imprecise. It brings together three very broad terms under this one you know one one Moniker, if you will, and you know, let me illustrate with the most simplistic of examples, and I will, I will say very simplistic examples. You could have one fund that targets investments in companies that haven't at zero goal.
That's an ESG fund.
You can have another fund that avoids since stocks I will not invest in alcohol, guns, not that's an ESG fund. You can have another fund that targets companies that have particular board characteristics.
That's also an ESG fund.
So if you are an investor and you're interested in funds and interested putting your money in funds that will help you know, with climate solutions, and you just do ESG funds, then what do you do with that? And how do you get to that bottom of like I want not just broad umbrella ESG. I want funds that target climate solutions. So there is a problem with the term. And when you look at the SEC rule, and by the way, I just to I think I would know the SEC in trying to bring clarity to the space.
That is a good thing.
That's important for investors because here you're talking about retail products, so it's really important to bring clarity. But if you're doubling down on this term that is just so broad and includes so much, are you really going to bring clarity to space?
Yeah.
No, it's a difficult question because some like advisors may want water down ESG. They may want just a slight tilt because they don't like tracking her. But an ESG advocate would argue, that's not really ESG investing. And so same thing happens in smart beta. There's value ETFs that are just barely value, and a quant would be like, that's just that's not really value investing. You got to go hardcore. So I don't know, it's tough to police
this in general, but I think the names. When I wrote my first book, I had the golden rule of ETF investing is never totally trust the name. You know, definitely look at the holdings, no matter what it's called, or no matter how good of a job it does, because sometimes the names don't quite match up well.
Extension of what Eric's asked you, how much does the SEC look at the ticker itself and care about what's in the ticker or what's implied by the ticker.
Maybe, So I want to touch on names and ticker. So first names. Names are important, but I would the hope that we're not buying funds based.
On just the name.
And I hope, yeah, there moment that was kind of kind of part of part of what drove that moment.
Yeah, but you know that just really hope that's not where like at least like the look at the fact sheet right there's And by the way, if you're going through a financial professional like an advisor or a broker, then they're looking beyond the name, and I I you know, self directed investors are actually ones that believe they have like a they want to be self directed. They're choosing to be self directed. They they have facility with the market. So I don't know if they just look in at
the name. So I wouldn't want us to overplay the name is important truth in advertising, but it shouldn't be such a huge focus that we lose sort of track of like it cannot be the only component on on the ticker. I mean, I will tell you this, I mean you could you could spend time I'm arguing with a fund on a name and then they get an interesting ticker.
Hold on, I'm gonna jump in. I know, I know what you're thinking of the blockchain ETF. They didn't want the word blockchain and the fund and then they were like, okay, fine, we'll call it the Data Transformational something or another, and then block is the ticker. We always we always wondered about that. It's like it's they It's almost like the industry has this little bit of an ace up their sleeve. If they really need.
It, you can do we can either confirm nor deny.
If I'm not thinking of any funny example, I'm just I'm just.
Saying, how about the how about the marijuana one? MJ is the ticker, but the name is like emerging agrosphere or something.
Well, actually, I am curious because you were at the SEC when cannabis came up? So how did how did the SEC evaluate? All of a sudden I could probably do a pun here, but all of a sudden, there were a lot of cannabis themed ETFs.
Something that people sort of don't think of on the outside, which is, you know how the commission is, how it takes in some of these products. Right, in some cases the product, everything about it is sort of under a rule, and so all you're looking at is the registration statement and making sure that meets the regulatory requirements for disclosure.
In some cases, like the non transparent ETFs by way of example, they don't fall within the regulatory framework, so you have the whole exemptive process where the commission can have a much bigger role in shaping. So when the cannabis ETFs came in, they were in that disclosure space. So are you disclosing all the risks? Are you looking at any legal risks in that regard? So that one is just a focus of what is it doing? Are
you saying what it's doing? And are you telling the world out there what if any potential liability you would have in frankly, you know, can you sell it given the laws at the time.
And you know, one thing we've seen over and over throughout history is Canada seems to like there'll be filings in the US for something and the sec will you can tell, be wrestling over it, and then Canada will just launch it like they seem to have liberal regulators. That's how the first TTF came out. Actually MX thought of it, but then share the idea with Toronto Stock Exchange and they launched it in Canada.
First.
They didn't happen with fixed income, That didn't happen with cannabis. It's happened over and over. Do you do you care what Canada does at all? Like, are you or does that give you an incubator to see, Hey, did it work up in Canada? Maybe we'll be okay with it.
So just speaking from my you know, former former hat you always look at where their regulations and the products are developing and other jurisdictions, but it's always important to keep in mind that we are not in other jurisdiction like the United States jurisdiction. We are the most sophisticated, most mature market the ETF space, for example, fixed income derivatives.
We are the biggest market. So you can always look at what's happening somewhere else, but you have to keep your eyes grounded right here at home because our rules, our markets are different, and you shouldn't, you know, bar regulation from other places simply because like you think they sound good, Like you really have to think about will it work here? Is it going to help our markets
evolve and develop. Does it lend to market resiliency? Does it lend itself to innovation but in a way that works in our markets.
Is there any quiet second guessing that goes on in the SEC where it's like, we really should have done that differently.
That's a great question, you know.
The SEC, and I will just give us sort of like a chapeau to the staff and the Commission. They work really hard to make sure that they answer or get answers to the questions they have. I think sometimes that results in perhaps some frustration with the pace of working with the Commission, But it really is to your point that you don't want to get to the place where you like, you know, you know, I miss something
or didn't do something. Hopefully, if that ever happens, it's something that's pretty minor.
Well actually related to that. Then, because you've had multiple tour of duties and you were under j Clayton during your tenure and now Gary Ginsler's there and that's who the head was at the conference, I'm assuming you have you've had others SEC chairs and previous tours of duties. How much did the SEC really change based on who's in charge.
Great question.
So I started under Chairman Donaldson, so that was I'm dating myself here right by quite a bit. Look, I mean, the SEC is an organization of very professional staff, many of whom are career staffers who have been there for a very very long time, and by virtue of that, they are actually experts in in in the markets and in the areas that they regulate. So yes, I mean when you get a different chair in the agency, the chair is the one that puts together the agenda for
the agency, so you get different rule makings. You can get different flavors here, but I think the piece that in the rule makings are very public. But there is so much to the mission of the of the agency that's done by the career staff day in, day out, and those those pieces tend to be pretty consistent. But the one you know, significant difference, well if you will, is the rule making agenda that is driven by the Chair of the Commission.
Can I ask then about how crypto is being talked about in your time there, and and then what you what you make of what we've seen within the last few weeks and months.
So I think I have a pretty public letter around the you know, bitcoin ETFs.
I think it wasn't.
I can't remember the date now, but it was pretty early in my tenure when we published it and that one, and we also did a request for common on custody for investment advisors. And what we did there was sort of put it out there in the marketplace, very transparent. These are all the issues, so that you understand where the staff is coming from. So when you're approaching us, you know where the questions are, and everybody knows where the questions are.
This was a big letter because the filings were piling up.
This sort of.
Created a lot, I think a lot more work in the prospectuses. I thought they would answer these as best they could, and over the next couple of years they would have answered all these questions. But I do remember that was a huge It was a little bit of cold water because there's a lot of questions.
We thought it was important to make sure the marketplace understood all the issues and transparently, so not you know, if you came in to have a meeting with us, we would tell you, but it was really important for everybody else to have that information as well, not just you in a closed meeting, so everybody was on the same level playing field. So we were talking earlier about sort of the touch point to the Commission when products come in, be it like a rule or an exemption
or disclosure. And what was happening was you were getting a lot of these registration statements filed when there were like very significant legal questions, and that was sort of like, you know, let's just you know, not keep on just piling on registration statements. Let us answer this legal questions, think through them and see where we can go. You know, obviously it's still a there's still lots of questions. Eric kind and I don't say.
Yeah, no, this is something we've been tracking forever. It's now eleven years old the horse race. The first one was filed by Winkelvoss, and there's been seventy eight filings along the way. We actually tracked this whole big board, and you know, most of them have been rejected. But now you've got a couple more filing. And the reason, as you can understand, is that if you're first with a spot bitcoin etf you are an instant millionaire. You can probably buy a small island. It's like, again I
equated the cannonball run. You know, whoever gets to LA first and that movie gets all the money. It's a first to market thing, and so of course they're just going to like roll the dice left and right just in case. I don't know, you've shifted your mindset and you're like, now's the time. So I feel for the issuers, but also feel for the SEC. It's just the It is quite the situation though I called a saga. It's now eleven years running.
Did the SEC have a big board that they just put it was like, oh, here's another one.
So you know, a few sort of threads to pull here.
I think having the market having clarity on where to SEC is right now with respect to these products would be great. If you look at the safeguarding rule that was recently proposed, you know, there seems to be a more of a shutting the doors as opposed to anything else in the space. I think in the bitcoin space, crypto asset space in general, frankly, more regulatory clarity, and this is not just about the SEC, would be welcome. I think any player in a space would would agree
probably with what I'm saying. So this is a space that regulatory certainty and clarity and allowing innovation with the proper market and investor protections would be fantastic. And I don't know that we're getting that. We're just getting a lot of like, we don't like this, so we will continue to you know, not allow things to go out.
So that needs some work.
But in general, if you step back even before before we even get into this new asset class, ETFs are still not on the same playing field as just your typical mutual fund there and you know this right you talked about it Eric in the in the conference, there are still, for example, for non transparent class ATF are still assets that you can't run a non transparent because it's still it's outside the rule and you still don't
have an exemption for it. So I think for me, getting ETFs to a place where it's on par with mutual funds would be a fantastic step forward for a product that I think has really proved itself in the marketplace over and over again.
So that's one.
And then the other thing which I think would be really helpful for ETFs, especially fixed income ETFs, is that they should be getting fixed income treatment like not equity treatment for accounting purposes. I think that would just really
help that product as well. So looking at ETFs to equalize them with mutual funds in terms of the offerings because they are open ended funds, but also looking at the ETF and sort of evolving that product to where it should be evolved, because if its unique features is
another place. And then going back to crypto and crypto assets and bitcoin, I'd say regulatory clarity, appreciating that investors want this asset class and making sure that the you know, it's being provided in the market in the way that meets investor protections, market resilience, all these all these things that you know are I have always helped our markets and made our markets what they are, like the best in the world.
These are all good things.
And when I presented by the way, I had to put a cryptoslide in there, and I showed the percent premium of ETF spockpick whin ETFs overseas versus gs GBTC, which is like a closed end fund, and the premium is all over the place, right, it's like a broken
you know, that's like a clothes un fund. The ETFs did a pretty good job during the past couple of years in other markets and My point to them, because I had their ear, was like trust the et or have faith in the ETF, maybe even more than you have a lack of faith in the crypto market because a lot of the market makers are not going to fool round with like shady exchanges, and so those exchanges may actually up their game to get the money from
the market makers. And if you could custody it with fidelity, you're gonna be way safer than you wouldn't have an FTX situation because the ETF is transferable. Because this your assets would be safe. So there were a couple of reasons I thought the ETF again should be But I totally understand all these other issues. For sure, it's complicated, I mean to say the least, especially after last year.
So I get it. It's just, you know, it's one of these things we cover and I get exhausted, frankly, because it's just like goes on and on and on.
I'm really curious. This is a crazy moment in American culture. I think even investing has become partisan, and I'm curious about that. Having been both on the public side of the SEC and then entering the private markets and publicly traded companies again, but what is it like to live through this moment where investing has become a partisan sport and what and what what concerns do you have for investors about that?
So it's it's not investing rit large, it's EESG. Yeah, right, and.
I definitely was not expecting the moments as it happened. Then the very strong views, but.
That's from from both from both sides.
So you know, if you're on one side, you have stakeholders accusing asset managers of not doing enough to address climate change or whatever social issue that is important to them, demanding that they adopt certain investment and stewardship practices to promote green finance and corporate social responsibility. And that's without regard to the fact that asset managers have a fiduciary obligation duty to asset owners.
It's the asset owner that chooses.
Right On the other side of that, you have stakeholders who accusing asset managers of using other people's money for social or political goals that are not allowed aligned with creating shareholder value. So the values versus value and this is what has led to hundreds of anti and pro ESG bills across the US. I think this legislative session for the States was over two hundred and seventy if I'm right about the number.
So that's like there was never any and then all of a sudden this if you look.
At last year versus this year, like the number has significantly gone up. I'd be curious, like next year what the what the number would be. But it just really tells you how really divided we are here in the US on the state level. Obviously on the federal level we're also divided. You're hearing you're hearing that in the Congress and between the different parties. And then you also if you have if you're a global asset manager, you actually also have stakeholders in Europe and Asia and the
Middle East, in Latin America. They also have very strong views about this. So it's really difficult, frankly, to thread the needle and get to a place where there is a common understanding on these on these issues.
So where do we go from here?
So, you know, looking at the at the US, I think a couple of things.
One is the term ESG.
I think if I'm on one side of this debate, whatever I say, I'm not going to convince you when you're not going to convince me, and that's just not going to a good place to be. So we can keep on using a term that everybody has entrenched around what it means and think that we are going to find our way to the to a positive end results. So the term ESG has become in and of itself and an issue, and unfortunately the SEC rules would enshrine it, which would you know, kind of enshine the problem, if
you will. The other part of it is when we are looking at the federal level, when we are looking at rules that help with the climate disclosure other disclosures, just really making sure that we stay true my opinion to the US system of market regulation, not adopting things, for example, from Europe. Europe has a very different system than ours, and that's not to say one is better and the other.
It's just different.
In Europe, pushing social policy through market regulation is a very well accepted practice. It's just how it works there.
We don't do that.
The US market system is about full unfair disclosure, it's about market resiliency, it's about investor protection. It's a very different system. So staying true to what has worked for us would be great, and I think that was a topic that was also discussed pretty at length actually in the conference that you and I were at.
Eric, Yeah, ESGQ up a lot, and part of the Europe US gap, I think also is here we were told to we plan for own retirements. We have for one case we become fund investors. We don't really assume the government's going to bail us out or not bail us out, but like hook us up for retirement. Maybe we' get a little from SOB security in Europe. I don't
think they're as tuned in. And also in Europe you don't have any like Amazons and Tesla's that you really want to capture in your portfolio, so they can screen stuff out with little less worried they're going to miss out on returns. So I do think there's a couple issues in Europe that I agree with you. It's not America. This is a different system here, ESG. The term I agree it's I say it's got baggage. You know, it's
got so much baggage it's become a political football. But like I was at a panel at inside ETFs two months ago and someone was like, we need to have someone sort of like unify, be like, look, none of us want polluted rivers, right, we all agree, Like there's definitely some common ground on ESG and the haters. Maybe not everything, but the term itself has become like it's just you just go. It gets polarized and it's over. So I agree with basically both of those points.
Okay. AI was another topic that came up at the conference, And I'm curious, how concerned about AI are you?
I'm I'm I'm a middle aged woman, so AI is really above my level of understanding. I have a college, you know, kid who's studying computer science, so hopefully he'll explain it to me one day.
Look, AI is, it's it's novel.
It's we're seeing it in so many different spaces, you know. Cher Gensler raised it during the conference. Is something that you know, he is he is looking at, which I can understand when it's something that could fundamentally alter pieces of the market ecosystem.
I think I understand it.
I mean he said it would could be bigger than the internet, right, yeah, he was.
I was blown away. He was sort of it could be bigger than the Internet, and he had all kinds of h had a task for us already going out looking at it. And this is just when I was breaking in the press. But I get skeptical of these things that get hyped so quickly.
You know, I just let the market do its thing. But I think for me, it's really interesting when you have a focus on AI when we are in technology
minus one oh one. In some cases here in asset management space, we are still sort of talking about whether we should be allowing E delivery, So we're not even Internet stage, right, you know, before we talk about a AI, I think there's some pieces of technological innovation that could really help investors, For example, if they can get their fun documents in a user friendly way in an app ninn PDF by the way, if we can even get
to that. But we are like talking about AI when we're just honestly, we still are talking PDFs, some paper tax machines.
It's like that playoffs. Yeah, let's just handle the regular season first.
Yeah, we're not even overtime yet, right, I mean it's minus.
It's week four, all right, let's just playoffs. Let's just put that back.
So I'm curious. You have a new new job, Sullivan and Cromwell, What are you doing.
I'm a lawyer first and foremost, about twenty five years now, almost out of law school, and I'm really really excited about joining and Cromwell because with the roster of incredible clients and incredible talented attorney, I'll be working with my partners and and everybody else that makes ab solved and Cromwell, you know, to be at the front edge of like cutting innovation, you know, big regutatory questions and helping asset
management through that. That's something that really excites me. So I'm really looking forward to that.
So if you never found yourself doing another tour of duty at the SEC and I mean head of AI, yeah there's one. I mean you have a consultant in your in your sound. I think by that point, what would make you lose sleep?
That's a great question.
Uh. But by the way, I've done three So that's more than enough for any for any for any lifetime. You know, I've never approached it that way. I've always approached it with this isn't especially I'm just talking about the industry that i've sort of when I when I regulated, that was the only industry I regulated. It was always investment management. It's an industry that prides itself on regulation.
They actually very few people know this, but the nineteen forty Act, unlike the other federal Securities Acts, the industry was part of drafting it. They actually sat there with the Congress and the SEC in drafting it. They asked in some cases for more onerous provisions and what the sec was recommending to Congress. So the industry prides itself on its history of participating in being part of the
foundation for regulating itself and being a regulator. And frankly, the industry is what it is today that you know, it's it's thriving, it's big, it's growing, it's it's the biggest part of financial services. The asset management industry is bigger than insurance, bigger than banking. Because of that, you know, it's just it's you know, I think it's a great industry. So, you know, for me, I don't always think about the lowest common denominator. I don't always think that regulation should
be at that level. I think about how to make sure that we meet those things that make the US capital markets, you know what they are, and continue thriving, which is the full fair disclosure, making accessible, making sure any innovation happens with the parameters of market resiliency, investor protection, but not losing sight of the fact that we have a really strong resilient market and an industry that actually wants to be regulated and is happy being regulated, and
for the most part, they do what's right.
Okay. Sometimes we asked a question, we think this will be good.
I'm curious what your answer is going.
To be a favorite ticker other than your own, which I would say, you know, you've worked a couple of places that maybe you shouldn't be able to recommend something from.
So Eric, you mentioned inside ETFs the very first, and I think may have been unfortunate, the only inside ETFs conference. Loved the conference by the way that I attended. There was a presentation where everybody got on stage in a pink T shirt with the word she on it.
Oh yeah.
Tom Lyden led that.
Charge I have that I have that T shirt. Yeah. So I would say that that's that. That ticker was pretty good.
Good one.
That's good. That's a good answer and with with a little narrative memory attached to it. Very good. Some people struggle with that question, especially people who work at issue.
She's hard for them to.
But if I could come up with a ticket from myself many.
That would be good.
You can keep that to yourself, you know, you might find yourself in u you know, in the market again sometime. All right, Dlia Blast, thanks so much for joining us on Trillions. Thank you for having me, Thanks for listening to Trillions until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify, or wherever else you'd like to listen. We'd love to hear from you. We're on Twitter. I'm at Joel Webbers Show.
He's at Eric Baulchness. This episode of Trillions was produced by Magnus Hendrickson. Bye