Just as they threatened to do, the hedge fund and private equity industries are challenging new rules imposed on them by the Securities and Exchange Commission. Trade groups for those private fund advisers filed their petition Friday in the U.S. Court of Appeals for the Fifth Circuit in Texas.
On Aug. 23, the SEC adopted rules requiring expanded reporting by the advisers to hedge funds, venture capital, and private-equity funds. Fund managers would also have to obtain investors’ consent before levying certain charges or treating some investors better than others. The final rules were actually milder than those the commission first proposed in 2022, as SEC Chair Gary Gensler and his staff paid heed to critical comments from the industry.
Still, fund management associations said they might challenge the final rule, after studying the changes. Friday, they did.
In the petition, trade groups including the Managed Funds Association and the American Investment Council argue that the rules exceed the SEC’s statutory authority and are unworkable.
“The new rules would fundamentally change the way private funds are regulated in America,” says the filing by Gibson, Dunn & Crutcher partner Eugene Scalia. “Among other things, the rules would effectively bar many of the bespoke contractual terms investors negotiate to meet their specific needs.”
The Fifth Circuit is a conservative bench that is favored by industry groups challenging Biden administration actions. The lead plaintiff in Friday’s petition is The National Association of Private Fund Managers, a wraithlike nonprofit established last year within the Fifth Circuit’s jurisdiction that has no identifiable website, email, phone number, or staff.
An SEC spokesperson said: “The Commission undertakes rulemaking consistent with its authorities and laws governing the administrative process, and we will vigorously defend the challenged rule in court.”
Write to Bill Alpert at [email protected]
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