June 6, 2024
Federal court strikes down SEC private funds rule
A US appellate court has thrown out an SEC rule that required higher transparency from private funds. 

Tania Mitra | Citywire Amercias

The Fifth Circuit Court of Appeals has vacated the private funds advisor rule, on the grounds that the SEC has ‘exceeded its statutory authority’ with its implementation.

A US appellate court has thrown out an SEC rule that required higher transparency from private funds. 

The private funds adviser rule, adopted by the regulatory body in August 2023, aimed to increase transparency and hold private funds to a higher standard of accountability. As part of the rule, private funds were required to prepare quarterly statements that include ‘detailed information’ on performance, adviser compensation, and fees and expenses, cease giving preferential treatment to specific investors and undergo annual audits. 

Now, the US Court of Appeals for the 5th Circuit has vacated the rule, citing that the SEC has ‘exceeded its statutory authority’ and ‘no part [of it] can stand.’ 

Following the adoption of the rule last year, six trade associations sued the SEC, alleging that the agency overstepped its purview. The petitioners claimed that the rule ‘fundamentally change(d)’ the way private funds are governed, that it would bar advisers from charging some expenses and would require ‘wholly unnecessary’ and costly reporting. 

A spokesperson for the SEC said that the agency is ‘reviewing the decision and will determine next steps as appropriate.’ At the time of consideration, the SEC had voted 3-2 in favor of the rule. 

‘Today’s ruling is a significant victory for markets, fund managers, and investors,’ said  Bryan Corbett, CEO of Managed Funds Association, one of the petitioners against the SEC. 

‘Unfortunately, this is just one instance of SEC overreach as it looks to push through the most aggressive agenda in decades. MFA will continue to work constructively with the SEC to help improve its rushed rulemakings, and we remain focused on enabling alternative asset managers to raise capital, invest it, and generate returns for their beneficiaries.’

SOURCE: Citywire Americas

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