Profile: Keeping the peace
Paul Schott Stevens, president and CEO of the Investment Company Institute, reflects on the many crises faced during his time working in the US financial services industry, and explains why an appropriate framework of regulation will be so important moving forward
by Rosalie Starling
When Paul Schott Stevens graduated from Yale University in 1974 with a degree in literature and philosophy, he never dreamed he would come to play such an instrumental role in the US financial sector. But he has just completed his 13th year as president and CEO of the Investment Company Institute (ICI) – on 1 June – a role which has seen him undertake significant work on US financial policies and steer the organisation through periods of incredible difficulty and change.
Treading the path to successPaul started his professional career in the midst of a steep recession. Finding it hard to secure full-time work, he took a civil servant examination and was offered a role as a trainee personnel specialist in the US Navy. However, he soon made the decision to apply for law school, and “never looked back”. After completing a juris doctor degree at the University of Virginia in 1978, he spent the next few years practising law in Washington, DC, until, in 1985, he was offered a role at the White House, working as deputy director and general counsel for President Ronald Reagan’s Blue Ribbon Commission on Defense Management. “I’d gone from one of the lowest-ranking federal civil servants in the Navy to almost the top of the bureaucratic ranks,” says Paul.
The following period saw even more involvement in government, as well as national security affairs, until Paul made the decision to move into financial services – an industry that he had become deeply interested in. “Asset management and mutual funds, in particular, have very much been a thread through my professional life.” In 1993, Paul joined ICI as general counsel, where he served until 1997 before moving to Charles Schwab & Co. and then to law firm Dechert LLP’s financial services group. In 2004, Paul rejoined ICI – this time as its president.
“I was given great trust when I arrived at the Institute. We were in the midst of a crisis, with some members of the industry engaging in market timing and late trading, meaning we were very much under the gun.” While Paul’s background in law meant he had never managed an organisation of that size (170 employees) before, it also proved to be an invaluable source of wisdom. Being a voracious reader and fact collector, Paul has always been keen to learn from every opportunity that comes his way. While law practise helped him to develop a tremendous attention to detail, Paul’s stint at the White House provided a “front row seat” in how government works. This experience has helped him guide the Institute through a 13-year period of continuous challenge, including, three years into his term as president, the global financial crisis.
A constant struggle“In August 2007, I got a call from the Securities and Exchange Commission (SEC) – it was a ‘Houston we have a problem’ moment,” he says. Issues with money markets and money market funds grew over time, eventually resulting in intervention by the US Treasury Department. Paul was heavily involved in the effort to collect insight from ICI’s members that helped to form regulation recommendations for the SEC – to ensure a crisis on this scale did not happen again. As a result, money market funds were the first part of the US financial system to be reformed during the crisis. “The Dodd-Frank Act doesn’t contain any provision directed to money market funds – I don’t think any other part of the US financial system can say the same thing.”
"As one billion people become members of a global middle class, for them funds will be just as key as they are for millions of Americans and Europeans today"
Since then, Paul has engaged closely with key domestic monetary issues, notably during periods where policymaking was affected due to the gridlock of “excessive partisanship” in Washington. “There was an inclination to flirt with a default of US Treasury securities by failing to extend the debt limit.” This is something Paul has spoken out very strongly against to ensure that discipline is maintained – both in relation to the status of US Treasury securities, and more broadly in balancing the budget and paying down the country’s indebtedness.
On the tax side, a major struggle has been preserving the incentives that American savers rely upon for their retirement – namely 401(k) plans. Around half of the money in 401(k) plans, or retirement accounts, is invested in mutual funds. “The deferral treatment is a very important and valued tool that people rely on, so defending it has been something we’ve been doing for years.” The new administration under Donald Trump recently announced the framework of its tax reforms, noting that it did not intend to disturb the treatment of retirement plan contributions.
The global stage While domestic issues have been a major focus for Paul throughout his presidency, international issues, including the ability of US managers to invest around the world, have always been on the agenda – albeit in a smaller capacity. This all changed in 2011 when the rapidly increasing international focus on funds from the point of view of regulators and policymakers meant ICI had no choice but to jump into the global marketplace with both feet – and ICI Global was born.
Six years on, ICI is now the only organisation that represents the fund industry globally, with its membership’s assets under management standing in excess of $25tn. “We have no intention of doing the work that individual trade associations do within their own jurisdictions at the capillary level, but on a larger, jugular level, there are issues that cut right across the planet, affecting funds or their advisers no matter what jurisdiction they may be in,” says Paul. “You can’t really talk about these in isolation, because the concerns of the FCA in London, or the Financial Services Agency (FSA) in Tokyo, will be reverberating elsewhere.”
2004–present: Investment Company Institute, president and CEO
1999–2004: Dechert LLP, partner
1997–1999: Charles Schwab & Co., senior vice president
1993–1997: Investment Company Institute, senior vice president and general counsel
1989–1993: Dickstein Shapiro & Morin, partner
– 1986–1987: partner
– 1978–1985: associate
1989: The Pentagon, executive assistant to the Secretary of Defense
1987–1989: The White House, special assistant to the President for National Security Affairs
1987–1989: National Security Council, executive secretary
1987: National Security Council, legal adviser
1985–1986: President’s Blue Ribbon Commission on Defense Management, deputy director and general counsel
2008: Financial Services ‘Good Scout’ Award, National Capital Area Council, Boy Scouts of America (2008)
1990: US-Japan Leadership Fellow, Japan Society
1989: Department of Defense Medal for Distinguished Public Service
1978: JD, School of Law, University of Virginia
1974: BA, magna cum laude, Yale University (Scholar of the House)
And, given the major political events of the past year, this global focus is even more pertinent. “It’s been absolutely breathtaking,” says Paul of the rapidly changing public policy environment. “The vote for the UK to leave the EU, the issues with respect to the future direction of the EU, as well as a new administration in the US and Republican majorities in both houses of Congress – who are looking to take a very different approach toward regulation.” Add to this a highly competitive, highly evolving global marketplace, and the business environment for regulated funds is something of a challenge.
The way forwardLooking forward, Paul sees maintaining an appropriate framework of regulation as paramount to the success of the industry. “This will mean reining in some of the excesses of the Dodd-Frank Act – the ones, for example, that have threatened to impose an overlay of bank-type regulation on successful funds and advisers, which would be highly damaging.” Upholding these standards will be a challenge as the policy environment in Washington changes. “We have to be able to respond, no matter where the politics will take us.”
Outside of the US, ensuring that the global environment for fund investing remains hospitable will also be key. While the US marketplace currently represents around half of the total fund market worldwide, Paul expects to see a remarkable expansion in fund investing outside of the US over the next 20 years. “As one billion people become members of a global middle class with needs to save and to invest, for them, funds will be just as key as they are for millions of Americans and Europeans today.” He is therefore aiming to develop the Institute’s research programme to extend internationally in a much more definitive way than it has done in the past.
This work would not be possible without Paul’s long tenured team, he says. These individuals – and the chairmen from member funds whose integrity and leadership has brought people together to solve common problems time and time again – have been a constant source of inspiration throughout his ICI career. But despite this, there is always a need in such organisations to ensure that continuity and succession planning are in place. “Making sure we are anticipating the needs and changes that will happen over the next five years is so important – that’s a big part of my focus.”