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SEC Chairman Gary Gensler wants more hedge fund and private equity disclosure

Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler speaks during a Senate Banking Committee hearing in Washington, DC, U.S., Tuesday, July 30, 2013.

Andre Harrer | Bloomberg | Getty Images

Securities and Exchange Commission Chairman Gary Gensler launched an ambitious regulatory agenda this year — and his agency is advancing key measures for hedge funds and private equity.

The federal agency is meeting on Wednesday to consider three new rules: more disclosure for hedge funds and private equity funds, more disclosure about cybersecurity risks and attacks, and shortening the date by which stock trades must be settled, a spin-off from the GameStop saga.

There are more than 50 proposed rules Gensler is considering this spring, one of the regulatory agency’s biggest regulatory pushes in decades.

More disclosure of hedge funds and private equity funds

Gensler wants more disclosure from private funds (hedge funds and private equity funds). In a speech in November, he noted that private funds (primarily private equity and hedge funds) had gross assets under management of $17 trillion and that many of the investors were state government pension plans, nonprofits and university endowments. The Dodd-Frank Act of 2010 required many private fund advisers to register with the SEC and report information about their holdings through a new Form PF filing.

Gensler said he wanted to “refresh” the Form PF filing and require additional information, saying more information about what private funds are doing is critical to the SEC’s investor protection role. He wants funds that have experienced “significant stress” (i.e. big losses) to report what happened within one business day.

The proposal would also reduce the reporting threshold for large private equity advisers from $2 billion to $1.5 billion in private equity fund assets under management.

Gensler also wants more transparency on fees and expenses. He noted that there had been little change in private fund spending, even though the costs of mutual funds and ETFs had fallen significantly, that the average private equity fee was estimated at 1.76% annual management fees and 20.3% of performance fees in 2018 and 2019. .

The chairman of the SEC wants a quarterly statement to investors with a detailed accounting of all fees and expenses paid by the private fund during the reporting period, and provide information about the performance of the private fund. This would not be made available to the public.

The bottom line is that it would shed more light on fund performance and whether private funds really outperform public funds when all expenses are taken into account.

The proposal would also require an audit at least once a year to verify the valuation of fund assets by private fund advisers.

Cybersecurity risk management

Shortening the settlement transaction date

The overall theme: more disclosure from everyone

Reviewing the more than 50 rules currently proposed or being finalized by the SEC, Shane Swanson, senior analyst at Coalition Greenwich, expressed surprise at the breadth of the proposals.

“It’s an aggressive SEC program,” he told me.

Swanson noted a common thread: “The general theme is more disclosure and more reporting – it cuts through all of these issues.

He also noted that part of the aggressive program – such as the emphasis on order flow payment and settlement cycle shortening – is the result of the controversy around GameStop and Robinhood, and it’s understandable that Gensler would want to push forward on these issues while they’re still fresh in their minds public.

“They have a lot of ideas that have been around for a while, and in particular they want to act while the focus is on some of these issues. [because of GameStop]like moving the settlement cycle,” Swanson said.

“So there’s a bit of ‘shake it up’ while they still have the public’s attention,” he added.

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