TLDR:
- A federal appellate court struck down an SEC rule requiring private fund managers to disclose fees and expenses to investors.
- The court ruled that the SEC had overstepped its authority with the rule, based on a law meant to protect everyday investors.
A federal appellate court has overturned a Securities and Exchange Commission rule that aimed to provide investors in hedge funds, private equity funds, and venture capital firms with more information about fees and expenses. The ruling, made by the U.S. Court of Appeals for the Fifth Circuit, sided with industry associations representing private fund managers who argued that the SEC exceeded its authority with the rule. The court agreed with the argument that the SEC had overstepped, as the rule was based on a law meant to protect everyday investors in mutual funds and public securities, rather than investors in private equity and hedge funds.
The SEC’s August rule required private fund managers to provide quarterly disclosures about fees and expenses to investors and to treat all investors equally, regardless of their size. The goal was to bring more transparency and competition to the private fund industry. However, industry groups objected to the rule, citing increased operating costs. Advocates for greater transparency in financial markets criticized the ruling, while industry groups saw it as a victory against SEC overreach. This decision may lead to further legal challenges in the private fund industry.