2022 year-end asset management updates

Asset management’s 2022 year-end webinar provided an update focusing on the current state of the industry and an economic outlook. The webinar included trending topics in the industry such as digital assets, environmental, social and corporate governance (ESG), tax changes and cybersecurity, which members of the Baker Tilly team discussed in detail. John Basile, Principal and asset management team leader, moderated the event.

• Chris Tait, principal, led things off by diving into digital assets. The dominate coin in the market is down 75% from its all-time high and down 66% in the last 12 months. Along with bitcoin, ethereum is also down 75% from its all-time high. There has been a significant market value deterioration of cryptocurrency during the year. Stable coins don’t have an associated volatility like most coins and, as such, have become a major share of the market with five of the top 15 cryptocurrencies being stable coins. Bitcoin price does not necessarily correlate to market activity. Still, major players, including BNY Mellon and U.S. Bank, are coming into the digital asset space with custody platforms. On the regulatory landscape, bills are working their way through Congress to provide more clarity in 2023 regarding oversight over crypto exchanges.
• Joe Donnelly, principal, provided insight on ESG-related issues. Building a sustainable organization by developing a strategy and response to ESG should involve all departments across an organization. To help mitigate and manage climate change risk, organizations should follow three steps: identify, evaluate and quantify. Identify the climate change risks applicable to the organization and the impact to financial statements. Evaluate any plans to reduce climate-related risks including a description of the risks impact on strategy, business model and outlook. Quantify the expenditures to mitigate climate change risk, decrease greenhouse gas emissions and pay for climate change strategy-related costs. In building sustainability, an organization needs to assess the current state of sustainability efforts and evaluate what topics and initiatives are most relevant to the organization. Organizations should be aware that tax credits and preferences were created to encourage organizations to invest in ESG projects.
• When discussing the ESG-related tax impact. Sustainability is being sought after in all areas, including tax, and involves tax transparency of businesses and their tax impact, use of tax credits and total taxes paid. Tax credits are often used to encourage investments in ESG projects to create jobs and revitalize communities, particularly where private investment alone is inadequate. There are both qualitative and quantitative assessments that must be conducted relating to the ESG tax impact and opportunities that may present themselves that previously were not there. There are a litany of ESG-related tax credits such as New Markets Tax Credits, low-income housing tax credits, federal and state historical tax credits, environmental tax credits and renewable electricity production tax credits.
• Greg Nease, manager, provided the tax update on the latest legislative changes. The wide-ranging Inflation Reduction Act (IRA) includes a 15% corporate alternative minimum tax (AMT), 1% excise tax on stock buybacks, new and enhanced credits, and $80 billion to the IRS to improve enforcement efforts. The IRA did not make any changes to carried interest, but did update compliance for foreign filings per IRS draft instructions for 2022 to Schedule K-2/K-3 and Form 8621 T.D. 9960 and REG-118250.
• Chris Tait, principal, gave insight on cybersecurity. The Securities and Exchange Commission’s Division of Examinations priorities for 2022 include overseeing vendors and service providers, safeguarding customer accounts, addressing malicious email activities, such as phishing, incident responses to ransomware attacks, identifying and detecting red flags related to identity theft and managing operation risk as a result of work-from-home environments. The SEC proposed new cybersecurity rules that require policies and procedures to have risk assessments, user security and access controls, information protection, cybersecurity threat and vulnerability management, and cybersecurity incident response and recovery.

The Baker Tilly 2022 asset management update provided a high-level overview of trending topics from cryptocurrency trends and forecasts to proposed SEC cybersecurity rules and ESG-related regulatory updates that we hope will help you be better prepared for the year ahead.

For additional information or further discussion on any of these topics, please connect with our asset management professionals.

Watch our webinar recording here: