The financiers atop the growing $18 trillion field of private funds — hedge funds, private equity funds and others — would be required, under a new proposal from federal regulators, to provide investors with quarterly investment statements regarding fees and returns.
The money pouring into these funds typically comes from so-called sophisticated investors — wealthy individuals, pension funds and charity endowments — and the financial industry has argued that the consumer protections required for retail investors are unnecessary for these groups.
As SEC Commissioner Hester Peirce put it, investors in private funds “are able to fend for themselves.”
But Peirce was the lone vote against the proposal, which she referred to as a “sea change.” SEC Chairman Gary Gensler and the majority of commissioners said that the rules are necessary to promote transparency and competition among the firms.
“Private fund advisers, through the funds they manage, touch so much of our economy,” Gensler said in a statement. If adopted, he said, “it would help investors in private funds on the one hand, and companies raising capital from these funds on the other.”
Many retirees depend on the pensions that are invested in private equity and hedge funds, Gensler noted.
Moreover, industry critics say, the regulation is necessary because the information currently provided to investors about the fees and performance of such funds is often scant and difficult to interpret.
“It’s basic transparency,” said Carter Dougherty, a spokesman for Americans for Financial Reform, an advocacy group. “These Wall Street titans are constantly telling us how great they are. If they object, one can reasonably wonder: What are they hiding?”
The industry is already signaling its opposition.
“The private equity industry supports transparency and disclosure, and we work closely with our investors to ensure they have the information they need to make the best investment decisions,” said Drew Maloney, president of the American Investment Council, an industry group. “We are concerned that these new regulations are unnecessary and will not strengthen pension returns or help companies innovate and compete in a global marketplace.”
The proposal approved by the commission Wednesday comes two weeks after the SEC voted to propose another requirement that private funds report details of material events to the agency within one business day.