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SEC suffers setback in bid to increase PE and VC fund oversight

The SEC has suffered a major setback in its bid to increase oversight of the private equity and venture capital industry after a US appeals court threw out a new rule requiring managers to provide investors with fees and expenses each quarter.

On Wednesday, a three-judge panel of the US 5th Circuit Court of Appeals in New Orleans agreed unanimously with six private equity and hedge fund groups who had argued that the the SEC exceeded its authority by adopting the rule in August. The judges accepted their stance that the rules weren’t necessary for “highly sophisticated” private fund investors.

According to an SEC spokesperson, the Commission is now reviewing the court’s decision before deciding on its next step.

In addition to quarterly fee disclosures, the SEC rule, which also applied to hedge funds and managers of funds for institutional investors such as pension funds and endowments, prohibited firms from grating preferential terms over redemptions and special access to portfolio holdings to some favoured investors.

Industry bodies have welcomed the court ruling with MFA President and CEO Bryan Corbett describing it as “a significant victory for markets, fund managers, and investors”.

“The court affirmed that the SEC cannot expand its authority beyond what Congress intended.” He said in a statement. “Unfortunately, this is just one instance of SEC overreach as it looks to push through the most aggressive agenda in decades. MFA will continue to work constructively with the SEC to help improve its rushed rulemakings, and we remain focused on enabling alternative asset managers to raise capital, invest it, and generate returns for their beneficiaries.”

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