Hedge funds, private equity sue SEC over fee disclosure rule
Trade groups for the world’s biggest hedge funds and private equity firms are taking the Securities and Exchange to court over new restrictions it placed on the industry last month.
The American Investment Council and the Managed Funds Association are among the groups alleging the SEC went too far by rolling out sweeping rules mandating disclosures and barring firms from doing sweetheart deals with some investors. The organizations, which also represent a swath of smaller firms, asked the court to overturn the regulations.
“The new rules would fundamentally change the way private funds are regulated in America,” the groups wrote in the petition filed with the Fifth Circuit Court of Appeals in New Orleans.
In a statement, the SEC said it “will vigorously defend the challenged rule in court.” The agency added it “undertakes rulemaking consistent with its authorities and laws governing the administrative process.”
The regulations adopted on Aug. 23 require private funds to detail quarterly fees and expenses to investors. Firms will be prohibited from allowing some favored investors to cash out more easily than others — unless those deals are offered to all fund investors. It’s the latest bid by the SEC under Chair Gary Gensler to tighten its grip on the fast-growing, multitrillion-dollar industry.
The rule also prohibits funds from charging investors fees to cover regulatory investigations and compliance costs, unless investors agree to the expenses. It bans funds from charging those fees if the regulatory actions result in a court- or government-ordered sanction.
“The private fund adviser rule will harm investors, fund managers, and markets by increasing costs, undermining competition, and reducing investment
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