US SEC overhauls rules for $20 trillion private fund industry



NEW YORK, Aug 23 (Reuters) – The U.S. securities regulator on Wednesday adopted new rules that will shine a light on private equity and hedge fund expenses and fees, in what executives and lawyers said marks a sweeping overhaul for an industry long criticized for its opacity.

But in a partial victory for fund groups that opposed the rules, the Securities and Exchange Commission did not proceed with proposals that would have expanded funds’ legal liability and outright banned arrangements that allow some investors special terms.

The securities regulator’s five-member panel voted 3-2 to implement a number of new requirements aimed at increasing transparency, fairness, and accountability in the private funds industry, which has more than doubled its assets over the past decade. The industry manages around $20 trillion in assets.

The new rules require private funds to issue quarterly fee and performance reports and to disclose certain fee structures while barring giving some investors preferential treatment over redemptions and portfolio exposure. The rules also require funds to perform annual audits.

Advocacy groups have accused the private fund industry of unfair, conflicted, and opaque practices that hurt everyday Americans who invest in such funds through their pensions.

“Investors, large or small, benefit from greater transparency, competition, and integrity. It’s not as if some state pension fund benefits from opacity,” SEC Chair Gary Gensler told reporters after the panel’s vote.

While the changes mark the biggest overhaul of industry rules in years, the SEC rowed back on some proposals after major players, including Citadel and Andreesen Horowitz, argued that the agency was overreaching its authority by attempting to bar long-established fee structures and liability terms.

The agency dropped a proposal to bar fees for services that are not performed, such as compliance expenses or costs defending against regulatory probes, and scrapped another that would have made it easier for investors to sue funds for misconduct.

The SEC had also proposed banning so-called “side letters,” an industry practice through which funds can offer some investors special terms. Instead, it opted on Wednesday to require that fund managers disclose such agreements when they are financially material.

The SEC did, however, ban the practice of offering some investors special redemption terms.

Despite the softening of the original proposal, lawyers said the changes marked a sea change for the industry.

“This is still a sweeping series of rules for private fund managers that will have significant effects,” said Kelly Koscuiszka, partner with Schulte Roth & Zabel law firm in New York.

The rules will go into effect in 60 days, although some will be phased in depending on the size of the fund. They will apply to new agreements, meaning the industry will not have to rewrite all existing contracts.

The Managed Funds Association industry group said it continues to have concerns that the new requirements will hike costs and curb investment opportunities.

The group will “work with our members to determine the appropriate next steps to protect the interests of alternative asset managers and their investors, including potential litigation,” CEO Bryan Corbett said in a statement.

Image by: Pexels



Related Content

Edmund Shing, PhD

Global Chief Investment Officer
BNP Paribas Wealth Management

Edmund has over 29 years of experience in financial markets in a wide variety of positions, ranging from proprietary trading to portfolio manager in a number of financial institutions in London and Paris.  He previously held the role of Global Head of Equity and Derivative Strategy at BNP Paribas in London from 2015 to 2020, and has been Chief Investment Officer at BNP Paribas Wealth Management since November 2020.

Edmund is responsible for piloting our investment strategy and will continues to rollout out recommendations and themes with actionable advice that brings our expertise to our clients and support to our client-facing teams.  In this time of change, his expertise in following and anticipating markets is a true value added for both our customers and those at Wealth Management who serve them.

Edmund has a PhD in Cognitive and Computing Science from the University of Birmingham in the United Kingdom, and has done advanced studies in Knowledge-Based Systems and in Experimental Psychology.  He is an EFFAS-certified financial analyst. He has also authored the book “The Idle Investor” published by Harriman House in 2015, proposing 3 simple investment strategies that take only a few minutes to execute per month.

Media Kit

    Data Protection

    The information you provide will be held on our database and may be used to keep you informed of our and our associate companies’ products and for selected third party mailings. Please tick the box if you would prefer not to be contacted for these purposes:

    The Digital Banker Summit

    Moving on from FTX: is 2023 the year of CBDCs?

    Indonesia, Jakarta

    Thailand, Bangkok

    Philippines, Manila

    Contact Us

      Data Protection

      The information you provide will be held on our database and may be used to keep you informed of our and our associate companies’ products and for selected third party mailings. Please tick the box if you would prefer not to be contacted for these purposes:

      Request Nomination Pack

      Error: Contact form not found.

      The world’s preeminent Private Banks and Wealth Managers are demonstrating a committed drive in innovation, advisory, new products and services to meet the sophisticated needs of their clients.

      Amid economic activity revival on the back of the Covid-19 vaccine program, organisations moving from business continuity plans to stable working environments, together with the slightest improvement in unemployment numbers, forced the world to adjust to new realities. Coming to terms with the “new normal”, global investors are now on the look-out for attractive and stable investment opportunities.

      Needs of Private Wealth customers and families worldwide have drastically changed due to the pandemic and banks have had to accelerate efforts to deploy a multi-channel service strategy and safeguard clients’ businesses and wealth against negative impacts of economic uncertainly.

      The Global Private Banking Innovation Awards will recognise the world’s best private banks, wealth managers and asset managers that are championing innovation across advisory, service, products, customer experience and more.

      Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. 

      Request Nomination Pack

      Error: Contact form not found.