US private funds industry sues securities regulator over new rules

By Carolina Mandl

NEW YORK (Reuters) -Six private equity and hedge fund trade groups on Friday sued the U.S. Securities and Exchange Commission (SEC), arguing the agency overstepped its statutory authority when adopting sweeping new expenses and fees rules last week.

SEC Chair Gary Gensler said the rules will increase transparency and competition in the private funds industry, which oversees around $20 trillion in assets and has been accused by advocacy groups of opacity and conflicts of interest.

The agency did not immediately respond to a request for comment.

The changes require private funds to issue quarterly fee and performance reports and to perform annual audits. They also require that funds disclose certain fee structures, and bar them from offering some investors preferential treatment when it comes to their portfolio exposures and ability to cash out.

“The SEC has overstepped its statutory authority and core legislative mandate, leaving us no choice but to litigate,” said Bryan Corbett, Chief Executive Officer of the Managed Funds Association (MFA). The rules will increase costs for investors and curb competition, he added.

The suit was filed in the 5th U.S. Circuit Court of Appeals. The other petitioners are the National Venture Capital Association, American Investment Council, Alternative Investment Management Association, National Association of Private Fund Managers and the Loan Syndications & Trading Association.

The suit is one of a growing number brought against Gensler’s SEC. In a recent blow to the SEC, a judge panel ruled that the SEC was wrong to reject Grayscale Investments’ proposed bitcoin ETF without explaining its reasoning.

In May, the U.S. Chamber of Commerce also sued the SEC over a new regulation requiring publicly traded companies to disclose more information about share buyback programs.

Last year, the Chamber of Commerce had filed a lawsuit against the regulator over proxy voting rules.

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