The SEC is scheduled to vote on a controversial rule Aug. 23 that would require enhanced disclosure from private fund advisers and prohibit certain fee arrangements — and industry players are watching closely.
In its agenda for the Aug. 23 meeting, the regulatory agency said it plans to consider adopting the rule it proposed back in February 2022.
Specifically, the rule proposal would require private fund managers to provide quarterly statements to its investors, revealing more information on fees, expenses and performance. It would also require managers to acquire an annual audit of each fund it manages and a fairness opinion in connection with an adviser-led secondary transaction.
The proposal would prohibit private fund advisers from engaging in a variety of actions, including charging certain fees to a private fund or its portfolio investments, such as those for unperformed services; and seeking reimbursement, indemnification, exculpation, or limitation of liability for certain activities, such as breach of fiduciary duty.
It would also ban advisers from providing certain types of preferential treatment to investors and all other preferential treatment unless it's disclosed to current and potential investors.
Since its release, the rule proposal has received some pushback from the private fund industry, including from the Managed Funds Association.
In a statement Wednesday, MFA President and CEO Bryan Corbett said the rule would "be harmful to alternative asset managers and their investors."
"It would increase costs, reduce investment options, and make it more challenging for pensions, foundations and endowments to diversify their portfolios and achieve their desired returns," Mr. Corbett said. "More troubling, the SEC proposed these sweeping changes in a way that exceeded its statutory authority and lacked sufficient analysis of the impact of the rule on investors and markets. MFA will review the final rule and consider our full range of options to respond to the rule-making, including potential litigation."
MFA recently told its members via email that it could sue the SEC within two weeks of the rule's finalization if the agency doesn't significantly pare back its proposal in the final version, according to reporting from Bloomberg.