Birdthistle Takes Helm at SEC Division of Investment Management

SEC Chair Gary Gensler says he looks forward to working closely with William Birdthistle, an at-times harsh critic of the mutual fund industry, to plan and execute a proactive regulatory agenda.

This week, the U.S. Securities and Exchange Commission (SEC) announced the appointment of William Birdthistle as director of the Division of Investment Management.

Birdthistle currently serves as a professor at Chicago-Kent College of Law. The SEC division he will lead oversees regulatory policy for investment advisers and investment companies, including mutual funds and other investment products and services relied upon by investors.

SEC Chair Gary Gensler cites Birdthistle’s “remarkable expertise in investment funds” as a primary reason for his appointment, and, in a statement about the move, he thanked Sarah ten Siethoff for serving as acting director of the Division of Investment Management during his first eight months as SEC chair.

“The Division of Investment Management develops regulatory policies to oversee investment companies and investment advisers so that American investors can confidently save to buy homes, pay for college or plan for retirement,” Gensler adds. “I look forward to working closely with William to execute our mission.”

As spelled out by the SEC, Birdthistle joined the faculty at Chicago-Kent College of Law in 2006. He also has served as a visiting professor of law at the University of Chicago Law School. His research explores the interplay of investment funds, securities regulations and corporate governance, and he has served as counsel of record on multiple amicus briefs to the U.S. Supreme Court.

Prior to his academic career, Birdthistle practiced law at Ropes & Gray in Boston, serving as a corporate associate in the firm’s investment management practice. Birdthistle received his Juris Doctor from Harvard Law School, where he served as managing editor of the Harvard Law Review, and he received a bachelor’s in English and psychology from Duke University in 1995.

At a high level, Birdthistle’s selection fits into the trend seen in prior SEC appointments made by the Biden administration, as it is taking a clear change in direction relative to the prior administration, which put the focus of the SEC squarely on expanding access to investments and easing regulatory restrictions on advisers and investment companies. Gensler, on the other hand, has emphasized the need to more aggressively police conflicts of interest and other problematic behaviors seen in the securities markets and among its practitioners. To this end, in May, the SEC announced it had appointed Barbara Roper, former director of investor protection at the Consumer Federation of America (CFA), to the role of senior adviser to Gensler.

Birdthistle is known for his involvement as an expert witness in several important lawsuits in recent years, including Kennis v. Metropolitan West. In that case, Birdthistle offered pro-plaintiff testimony that suggested, in sum, that the mutual fund industry is insufficiently competitive to ensure arm’s-length bargaining on fund fees. He also opined that certain compensation structures used for portfolio managers can create incentives contrary to the financial interests of fund investors and shareholders, and that there are potential conflicts arising from certain payment of sub-accounting fees to financial intermediaries from fund assets for distribution.

Among his many publications, Birdthistle has also written about problems in the money market fund industry, with a particular focus on the market stresses seen in the wake of the Great Recession. In one paper, he argued the SEC’s response to the 2008 financial crisis actually increased, rather than decreased, the likelihood of future failures in money market funds and the broader capital markets. He wrote that the SEC “endorses practices that obfuscate rather than illuminate the capital markets, including fixed pricing for money market funds, potentially riskier portfolio requirements and the continued use of discredited ratings agencies.”

“These policies, premised implicitly upon doubt in the ability of markets to process information effectively, obscure the true perils of money market funds,” Birdthistle writes in “Breaking Bucks in Money Market Funds.” “Rather than swaddling investment risks in misleading regulatory padding, the SEC should illuminate the possible menace of these funds. This article offers transparent solutions to alleviate moral hazard and systemic risk in the broader market and to end the regulatory subsidy of these specific investments.”