Hedge funds and private equity firms are facing increased disclosure of their fees, and new restrictions on giving certain investors special treatment, after the US Securities & Exchange Commission (SEC) adopted a raft of new rules and amendments governing the $18tn private funds sector.
In a statement the SEC said that the new rules and amendments are “designed to protect private fund investors by increasing transparency, competition, and efficiency in the private funds market”.
Under the new rules, private fund advisers registered with the Commission will have to provide investors with quarterly statements detailing certain information regarding fund fees, expenses, and performance. In addition, the new rules will require private fund advisers to obtain and distribute to investors an annual financial statement audit of each private fund it advises and, in connection with an adviser-led secondary transaction, a fairness opinion or valuation opinion.
The rules will also prohibit all private fund advisers from providing investors with preferential treatment regarding redemptions and information via so-called side-letters unless full disclosure of such arrangements is made to “all current and prospective investors”.
The SEC has given advisers one year to adapt to the new requirements, while those managing less than $1.5bn have been given 18 months.
Heavy lobbying by hedge funds and industry trade groups have seen some of the SEC’s original proposals watered down or discarded, including a provision that would would have simplified the process for investors to take legal action against fund managers.
In a statement, SEC Chair Gary Gensler said: “Private funds and their advisers play an important role in nearly every sector of the capital markets. By enhancing advisers’ transparency and integrity, we will help promote greater competition and thereby efficiency. Consistent with our mission and Congressional mandate, we advance today’s rules on behalf of all investors – big or small, institutional or retail, sophisticated or not.”
