Private fund investor protection has been a significant topic of discussion in the financial community during the past few years. Now, it appears that the Securities and Exchange Commission (SEC) has decided to issue a new proposal to increase the protection of private fund investors.
The commission has voted to propose new amendments and rules to the Advisers Act (also known as the Investment Advisers Act of 1940) to increase the regulation of private fund advisers. The goal is to increase efficiency, competition, and transparency and a multitrillion-dollar marketplace to give more power to investors.
Private Fund Advisers Impact Many Parts of the Economy
Private fund advisers manage a wide variety of financial assets. Through their work, they impact multiple areas of the economy. Therefore, this field has to become more transparent to ensure investors have all the information they need to make educated decisions about what to do with their money.
According to SEC Chair Gary Gensler, the proposed rules and amendments will increase the power of investors in private funds by promoting an air of transparency and competition. Furthermore, the SEC believes that these changes will help companies raising capital from these funds, further spurring economic growth.
What Do the New Rule Changes Do?
The new rule changes announced by the SEC should increase transparency by requiring private fund advisers to issue quarterly statements to investors. That way, investors will have access to important information including:
- The performance of the fund over the past few quarters or years
- How the fund is spending its money, including potential advertising expenses
- Fees that investors might need to pay before dividends or distributions are disbursed
Instead of only having access to the share price of the funds, investors will have greater clarity regarding the fees and expenses they might be charged. Investors who do not have access to this information may not realize how much of their gains and profits are being eaten away by opaque fees. These rule changes would make these fees more transparent.
And addition, new changes to regulations would prohibit private fund advisers from giving preferential treatment to certain investors at the expense of others unless this treatment is disclosed to all investors equally. There would be additional restrictions placed on private fund advisers who are not registered with the SEC.
Finally, these changes would require private fund advisers to change the way they keep records, increase transparency, and be subjected to more frequent audits. With these rule changes, advisers would given more supervision regarding the transactions that these advisers carry out.
New Prohibitions in the Rule Changes as Well
Furthermore, the SEC has proposed a variety of new regulations that would prohibit certain activities that otherwise take advantage of certain investors. For example, private fund advisers have sought reimbursement, exculpation, and indemnification from certain questionable activities. For example, advisers have sought to circumvent tax rules and regulations for themselves. They have also sought fees and expenses that have not been charged fairly. These questionable activities would be prohibited, further ensuring that investors know exactly what is happening with their money.
There will be a public comment period lasting 30 days during which the SEC will collect feedback on these new proposals.