SEC to Vote on $20T Private Fund Industry Overhaul 

The US Securities and Exchange Commission (SEC) is preparing to issue broad regulations for private equity firms, hedge funds, and real estate investment businesses, with the goal of bringing governance and transparency up to par with US stock exchanges. 

The five-member SEC panel will vote on the rule package on Wednesday, which has the potential to significantly change the relationship between the $20 trillion private investment industry and its clients. 

The SEC suggested a package of changes for private fund advisors in early 2022 largely centered around transparency, including the need to state their quarterly reporting on performance and fees and submit to yearly audits. In addition, they would be prohibited from charging fees for services that were never provided. 

The proposed rules would also prohibit advisors, including those that are not registered with the SEC, from providing certain types of preferential treatment to investors in their funds and all other preferential treatment unless it is disclosed to current and prospective investors. 

Many industry groups are voicing strong opposition to the proposed rules. “It really upends the whole concept of freedom of contract between buyer and seller,” Alternative Investment Management Association CEO Jack Inglis told the Financial Times. 

The Managed Funds Association recently told members it’s ready to sue the SEC if the regulations are passed this week. The group’s chief counsel, Jennifer Han, told the FT, “[The SEC] have failed to identify a market failure and they haven’t done a proper cost-benefit analysis.”