An appeals court has struck down a Securities and Exchange Commission rule requiring private equity firms and hedge funds to disclose quarterly fees and expenses to investors, marking a win for the funds.
Hedge funds and related groups pushed back hard on the August 2023 rule, and a group of associations representing the firms challenged the regulation in court. The U.S. Court of Appeals for the 5th Circuit in New Orleans ruled unanimously that the SEC overstepped its bounds.
SEC Chairman Gary Gensler said during a Wednesday event that SEC staff members “will take a look” at the ruling and respond accordingly, according to Bloomberg.
The SEC rule in question, intended to promote transparency, mandated that fund managers provide quarterly performance and fee reports, perform annual audits, and more. However, critics said the regulation was overly burdensome and imposed excessive compliance costs.
The three-judge panel found that the SEC rule is unnecessary for highly sophisticated investors who typically invest their money with hedge funds, private equity funds, and venture capital firms.
“Today’s ruling is a significant victory for markets, fund managers, and investors, including pensions, foundations, and endowments,” Managed Funds Association President and CEO Bryan Corbett said. “The court affirmed that the SEC cannot expand its authority beyond what Congress intended.”
The combined assets under management by the funds covered by the rule were just under $27 trillion in 2022, according to the SEC. That is nearly three times the level of funds held by such firms just a decade earlier.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
Investment Company Institute President and CEO Eric Pan praised the unanimous court decision Wednesday after the news broke.
“We echo the court’s concerns that the SEC acted outside of its mandate,” Pan said. “As we await action on dozens of similarly overreaching proposals from the SEC, we hope the SEC takes the time to study this ruling and pay closer attention to the serious concerns expressed by the public and market participants on issues like liquidity risk management, safeguarding, and outsourcing.”
