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Private Funds Industry Sues SEC Over New Expenses and Fees Rules

Six private equity and hedge fund trade groups have filed a lawsuit against the U.S. Securities and Exchange Commission (SEC), claiming the agency exceeded its authority by implementing new expense and fees rules.

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The Lawsuit Details

The lawsuit was filed by six private equity and hedge fund trade groups, including the Managed Funds Association (MFA), the National Venture Capital Association, the American Investment Council, the Alternative Investment Management Association, the National Association of Private Fund Managers, and the Loan Syndications & Trading Association. They argue that the SEC overstepped its statutory authority and core legislative mandate by adopting new expenses and fees rules the previous week.

The Purpose of New Rules

SEC Chair Gary Gensler stated that the new rules aim to increase transparency and competition in the private funds industry, which manages approximately $20 trillion in assets and has been criticized by advocacy groups for its lack of transparency and conflicts of interest. However, the SEC declined to comment on the lawsuit.

Requirements of the New Rules

The new rules mandate private funds to issue quarterly fee and performance reports, conduct annual audits, disclose specific fee structures, and prohibit them from providing preferential treatment to certain investors regarding their portfolio exposures and ability to cash out.

Opposition to the New Rules

Bryan Corbett, CEO of the Managed Funds Association (MFA), said, "The SEC has overstepped its statutory authority and core legislative mandate, leaving us no choice but to litigate." He added that the rules would increase costs for investors and inhibit competition.

This lawsuit is part of a series of legal actions taken against Gary Gensler's SEC. Recently, a judge panel ruled that the SEC wrongly rejected Grayscale Investments' proposed bitcoin ETF without explaining its reasoning. Additionally, the U.S. Chamber of Commerce 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 also filed a lawsuit against the SEC concerning proxy voting rules.