Amid a burgeoning market for exchange-traded funds (ETFs), Ropes & Gray has expanded its investment management practice on the West Coast with the hiring of an experienced lawyer from the world’s largest asset manager.
Edward Baer, who previously served as the chief legal officer for U.S. iShares at BlackRock, joins Ropes & Gray as counsel in San Francisco. Prior to BlackRock, Baer practiced law at Willkie Farr & Gallagher and Morgan Lewis & Bockius. Baer comes to his new role with deep knowledge of the developing, marketing, and acquisition of ETFs and mutual funds, and of regulatory compliance matters affecting these products.
In a discussion with IFLR1000, Baer analyzed the increasing popularity of ETFs and the need for investment professionals to take the phenomenon into consideration. In Baer’s analysis, the growth rate for EFTs over the last decade has been rapid and compares favorably with the growth rate for mutual funds, robust as they have been.
“It’s critical for asset management firms to think about ETFs, and whether or not they actually get involved in the business, they need to have a strategy. The index space is well occupied by some of the big players. Everyone has to think about it, then conclude that maybe it’s not for us, or we want to do it in a very limited way. But if you’re a director or on the board of asset manager you need to be asking, ‘What is our ETF strategy?’” Baer said.
At the regulatory level, Baer sees an effort on the part of Securities and Exchange Commission staff to alter or “evolve” the industry. The regulators proposed rules a number of years ago, but the financial crisis got in the way of their implementation.
“They have made noises about revisiting those rules and various other rules, and made liquidity proposals. But there have been other high-profile priorities, and ETFs haven’t gotten the attention,” he said.
“If you look at the things the SEC has looked at more recently, there has been more attention paid to ETFs. The staff will be looking more closely. Whether that leads to rulemaking is anyone’s guess, because rulemaking takes time,” Baer added.
Baer said that he anticipates even greater focus on the sector as more players get into the industry and more firms launch active ETFs.
“For many years, there were only a handful of players. Most of the funds were based on a broad-based asset index, and the asset classes were pretty vanilla, pretty straightforward. But as the industry expands, there will be an effort to come up with a slightly better mousetrap. The entrants trying to get into market now will try to differentiate themselves with a different strategy, a different approach. And to the extent that there are continued liquidity concerns articulated by regulators and high volume trading of fixed income ETFs, there will be a continued focus on the sector,” Baer continued.
Baer holds a J.D. from Rutgers University School of Law – Newark and a B.A. from New York University.