The SEC’s new requirements aims to increase and efficiency in the $18-trillion marketplace.
The Securities and Exchange Commission on Wednesday proposed new requirements for private investment funds in an effort to increase transparency, competition and efficiency in the $18 trillion marketplace.
Under proposed rules, private fund managers would be required for the first time to provide investors with quarterly statements detailing certain information regarding fund fees, expenses and performance.
SEC Chair Gary Gensler said in a statement that he supports the proposal.
“Because, if adopted, it would help investors in private funds on the one hand, and companies raising capital from these funds on the other,” he said.
“Private fund advisers, through the funds they manage, touch so much of our economy,” Gensler said. “Thus, it’s worth asking whether we can promote more efficiency, competition, and transparency in this field.”
The Democrat-controlled commission approved the proposal by a 3-to-1 vote and the SEC will now seek public comments for at least two months before issuing a final rule.
The rules would prohibit private fund advisers, including those that are not registered with the SEC, from providing certain types of preferential treatment to investors in their funds. It would also bar all other preferential treatment unless it is disclosed to current and prospective investors.
Managed Funds Association President and CEO Bryan Corbett said in statement that the trade group shares the SEC’s objective in modernizing financial markets.
“[I am] pleased to see the SEC’s efforts in shortening the settlement cycle for securities consistent with MFA’s recently released market structure recommendations,” he said.
The proposed changes would create new requirements for private fund advisers related to fund audits, books and records, and adviser-led secondary transactions.
All private fund advisers would be banned from several activities, including seeking reimbursement, indemnification, exculpation or limitation of liability for certain activity.
Treatment of Private Funds ‘Misguided’
The new guidelines would prohibit funds from charging certain fees and expenses to a private fund or its portfolio investments, such as fees for unperformed services and fees associated with an examination or investigation of the adviser.
The SEC proposed amendments to the compliance rule that would require all registered advisers, including those that do not advise private funds, to document the annual review of their compliance policies and procedures in writing.
Push back against the new proposal was immediate.
“The SEC’s proposed additional regulations on private funds will harm the most sophisticated investors, including pensions, endowments and foundations, who rely on these funds to serve their beneficiaries,” Corbett said. “The agency’s treatment of private funds as if they were serving retail investors is misguided.”
Also on Wednesday, the commission proposed rules regarding cybersecurity risk management.
The proposed rules would require advisers and funds to adopt and implement written cybersecurity policies and procedures designed to address cybersecurity risks that could harm advisory clients and fund investors.
Advisers would also be required to report significant cybersecurity incidents affecting the adviser or its fund or private fund clients to the Commission on a new confidential form.
