SEC Private Fund Adviser Rule Overturned by Appeals Court 

The U.S. Court of Appeals for the Fifth Circuit struck down the Securities and Exchange Commission’s (SEC) private fund adviser rules, which would have imposed significant regulatory burdens on private fund advisers, costing at least $5.4 billion and requiring millions of employee hours to comply. 

The court ruled that the SEC went above its legislative power under the Investment Advisers Act of 1940 and the Dodd-Frank Act of 2010 in promulgating the regulation and vacated it.   

In a split vote, SEC commissioners approved the new rule in 2023, with the goal of protecting private fund investors through increased transparency. The new rule, which was contested by numerous industry associations representing private fund managers, called for private fund advisers registered with the Commission to provide investors with quarterly statements outlining fund fees, expenses, and performance. 

The court’s decision is a significant victory for private fund advisers, who argued that the rule would fundamentally alter how private funds are regulated in the U.S. and undermine the market-driven relationship between private fund advisers, the funds they advise, and the sophisticated investors who invest in those funds. 

The 2023 lawsuit was brought by several industry lobbying groups: National Association of Private Fund Managers, AIMA, American Investment Council, Loan Syndications and Trading Association, Managed Funds Association and the National Venture Capital Association. 

“Unlike familiar public pooled investment vehicles, like mutual funds, private funds are generally not accessible to non-professional investors, known as retail customers,” the court said in its ruling. “Instead, they are generally open to some of the most sophisticated and wealthiest investors—e.g., Abu Dhabi Investment Authority, Yale University endowment, Hong Kong Monetary Authority, Stanford Management Company, and Harvard Management Company. 

AIMA applauded the judgment against the rule, which the organization described as unlawful and exceeding the regulator’s authority to implement. 

“Today’s ruling rewards our decision to file suit, which was taken to protect the interests of our members against regulatory overreach and improper rulemaking by the U.S. SEC that would have had severe and adverse impacts on a wide variety of market participants,” said AIMA CEO Jack Ingles. 

In September 2023, Gibson, Dunn & Crutcher filed suit on behalf of AIMA and other industry trade bodies in the U.S. Court of Appeals for the Fifth Circuit.