The Security and Exchange Commission’s (SEC’s) Private Fund Advisers rule to enhance the regulation of such advisers and update the existing compliance rule that applies to all investment advisers falls short, according to U.S. Reps. Bill Huizenga (R-MI) and Steve Womack (R-AR).
“The decision by the SEC to finalize new rules for private fund advisers without addressing its impact on underserved businesses and communities, including emerging minority and women-owned asset managers, is disappointing,” the members said in a joint statement released on Aug. 23.
The same day, the SEC adopted new rules and amendments it said are designed to protect private fund investors by increasing transparency, competition, and efficiency in the private funds market. For instance, to enhance transparency, the final rules will require private fund advisers registered with the SEC to provide investors with quarterly statements detailing certain information regarding fund fees, expenses, and performance, the commission said.
Additionally, the final rules will require a private fund adviser registered with the SEC to obtain and distribute to investors an annual financial statement audit of each private fund it advises and, in connection with an adviser-led secondary transaction, a fairness opinion or valuation opinion, according to the commission.
And to better protect investors, the SEC’s final rules will prohibit all private fund advisers from providing investors with preferential treatment regarding redemptions and information if such treatment would have a material, negative effect on other investors, among other regulations, and the final rules will restrict certain other private fund adviser activity that is contrary to the public interest and the protection of investors.
“Specifically, failing to act upon the congressional directive to re-conduct the economic analysis is the latest example of the SEC’s complete disregard for oversight,” Reps. Womack and Huizenga said. “While it is questionable at best that the SEC has the statutory authority to finalize this rule, the lack of transparency is even more concerning.”
The lawmakers added that they will continue to look for ways to hold SEC Chairman Gary Gensler “accountable as he pursues another bureaucratic mandate that lacks congressional approval,” according to their statement.
Rep. Huizenga and Rep. Womack also had sent a July 6 letter to both Gensler and the SEC’s Chief Economist Jessica Wachter that reiterated their concerns about the sweeping new rules the SEC first proposed in February for private fund advisers.
“We are concerned that the commission conducted an insufficient economic analysis and failed to consider the impact on underserved businesses and communities, including emerging minority and women-owned asset managers,” they wrote. “Our concern is compounded by the fact that the commission does not appear to have acted upon the congressional directive to reconduct the economic analysis that was included in the Consolidated Appropriations Act, 2023.”
Rep. Huizenga is chairman of the U.S. House Financial Services Subcommittee on Oversight and Investigations, while Rep. Womack is chairman of the U.S. House Appropriations Subcommittee on Financial Services and General Government.