What Eileen Rominger's appointment means for fund biz

The Securities and Exchange Commission's appointment of Eileen Rominger, an 11-year veteran of Goldman Sachs Asset Management, as its new director of investment management, marks the first time in decades — if ever — that the agency has named an industry executive with no legal background to the position. And fund executives and observers are optimistic that her appointment could mean that the agency will take into account the practical needs of the industry when enacting reforms, particularly relating to 12(b)-1 and money market funds. On Jan. 18, the SEC announced that Ms. Rominger, 56, will start at the agency in February, replacing Andrew J. “Buddy” Donahue, who left in November. She retired as chief investment officer at Goldman Sachs Asset Management in December. Before that, she 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, a spokesman. Ms. Rominger's appointment demonstrates that Chairman Mary Schapiro is responding to outside criticism that the agency has been “too insular,” said Barry Barbash, former director of the SEC's 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,” Mr. Barbash said. Specifically, experts believe 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 that 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 (b)-1 plan ended Nov. 5 and generated more than 1,000 letters. One major criticism of the proposal levied by industry groups is that the SEC needs to address the 12(b)-1 issue in the context of all of the other regulations associated with Dodd-Frank. Indeed, many observers noted that the SEC has to examine 12(b)-1, as they would be affected by a universal fiduciary standard of care. Under Ms. Rominger, it's 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. Mr. Goldberg led the Division of Investment Management in the 1980s. “Historically, the SEC would use the Investment Company Act to deal with conflicts of interest in the investment management industry,” he said. For example, with the 12(b)-1 proposal, the agency started with the premise of “what is permitted under the Investment Company Act,” Mr. Goldberg 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,” Mr. Stevens said in his statement. The ICI, which represents the fund industry, declined to comment beyond the statement. Money market fund gurus are also hopeful that Ms. Rominger will be favorable to the industry's position on money market reform. Last year, the President's Working Group on Financial Markets, which comprises officials from the Treasury Department, the Federal Reserve, the Financial Stability Oversight Committee and the SEC, proposed eight reforms to provide greater stability in the money market fund industry. Among those proposed reforms: allowing money market funds to have a floating net asset value. Comment letters from the fund industry — including one from Goldman Sachs Asset Management — attacked the proposal. Instead, funds, including GSAM, favor an ICI proposal for an industry-sponsored backstop that would provide liquidity to money market fund in times of severe market conditions. While Ms. Rominger wasn't in charge of money market funds at GSAM, the Goldman unit is one of biggest money managers 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,” Mr. Crane said, noting that Mr. Donahue 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 agency, said one industry official who has spoken to fund executives. “The industry is concerned that by not being a lawyer steeped in the industry, she is likely to be influenced by the career lawyers on staff,” said the official, who requested anonymity. But regardless of her views, everyone agrees that with Dodd-Frank reform on the agency's plate, Ms. Rominger will have her hands full for some time. “With all the Dodd-Frank-related matters, my sense is that it will be some time before the agency gets to 12(b)-1 reform,” Mr. Barbash said.