Last updated: September 1, 2023 at 3:43 p.m. ET
First published: September 1, 2023 at 2:50 p.m. ET
A consortium of groups representing the private fund industry filed a lawsuit against the Securities and Exchange Commission on Friday seeking to block new rules that would require private equity and hedge funds to disclose quarterly performance, fees and expenses.
The rules approved last week would also ban so-called side letters, or agreements between a fund and certain investors that give them preferential treatment, unless those agreements are made available to all investors.
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A consortium of groups representing the private fund industry filed a lawsuit against the Securities and Exchange Commission on Friday seeking to block new rules that would require private equity and hedge funds to disclose quarterly performance, fees and expenses.
The rules approved last week would also ban so-called side letters, or agreements between a fund and certain investors that give them preferential treatment, unless those agreements are made available to all investors.
Read more: The SEC votes to require private equity and hedge funds to disclose their performance and fees
“The SEC has exceeded its statutory authority and core legislative mandate, leaving us no choice but to pursue litigation,” said Bryan Corbett, president and CEO of the Managed Funds Association, one of the litigants in the lawsuit.
“The Private Fund Adviser Rule will harm investors, fund managers and markets by increasing costs, undermining competition and reducing investment opportunities for pensions, endowments and endowments,” he added.
The MFA was joined by several other industry groups in filing the lawsuit, including the National Association of Private Fund Managers, the National Venture Capital Association, the American Investment Council, the Alternative Investment Management Association and the Loan Syndications & Trading Association.
An SEC spokesperson told MarketWatch: “The Commission is committed to adopting rules consistent with its authorities and laws governing administrative process, and we will vigorously defend the challenged rule in court.”
SEC Chairman Gary Gensler has argued in recent speeches and statements that the new rules are necessary to protect investors, including pension funds and endowments, which have increasingly turned to alternative investments to boost returns in recent years.
In a speech in May, he said private funds are becoming increasingly important to the U.S. economy, noting that advisers report they now manage $25 trillion in assets, up from $1 trillion in 1998 – surpassing the size of the US banking sector.
“The private funds industry plays an important role in every sector of the capital markets,” he said.
“It also plays an important role for investors such as pension funds and foundations,” he added. “Behind these organizations are a diverse range of teachers, firefighters, city employees, students and professors.”