A consortium of groups representing the private funds industry filed a lawsuit against the Securities and Exchange Commission Friday in an attempt to block new rules that would require private equity and hedge funds to disclose quarterly performance, fees and expenses.
The rules, adopted last week, would also ban so-called side letters, or agreements between a fund and specific investors that give them preferential treatment, unless those arrangements are made available to all investors.
“The SEC has overstepped its statutory authority and core legislative mandate, leaving us no choice but to litigate,” said Bryan Corbett, president and CEO of the Managed Funds Association, one of the litigants in the suit.
“The Private Fund Adviser rule will harm investors, fund managers, and markets by increasing costs, undermining competition, and reducing investment opportunities for pensions, foundations, 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, National Venture Capital Association, American Investment Council, Alternative Investment Management Association and the Loan Syndications & Trading Association.
The SEC declined to comment.
SEC Chair Gary Gensler argued in recent speeches and statements that the new rules are necessary to protect investors, including the pension funds and endowments that have increasingly turned to alternative investments in recent years to boost returns.
He said in a May speech that private funds are of growing importance to the U.S. economy, noting that advisers report that they now manage $25 trillion in assets — up from $1 trillion in 1998 — surpassing the size of the U.S. banking sector.
“The private fund industry plays an important role in each sector of the capital markets,” he said.
“It also plays an important role for investors, such as retirement funds and endowments,” he added. “Standing behind those entities are a diverse array of teachers, firefighters, municipal workers, students, and professors.”