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This post provides highlights from two recent WSJ articles relevant to ongoing rule-making at the SEC regarding new regulations which will apply to the VC and PE world.
The U.S. Securities and Exchange Commission has been working on sweeping changes to rules that govern private equity, hedge funds and venture capital. One of the best sources of what is happening is the WSJ which is following these topics closely. OODA has also been following these topics with an intent to capture the “so what?” and “What’s next?” of these rules and their impact on decision-makers in enterprises including commercial companies and the national security space.
Two gists of WSJ insights:
“Wall Street’s regulator is set to adopt potentially sweeping changes to the rules governing private-equity and hedge funds”
“The Securities and Exchange Commission said in a notice late Wednesday that its five-member panel will vote Aug. 23 on the rule package, which could significantly alter the relationship between private funds and their clients.
The proposed rules, floated early last year, have garnered furious opposition from hedge funds, private-equity firms and venture capitalists. Some have threatened to sue the SEC if it follows through with some changes outlined in the proposal, including a ban on “side letters” that give certain investors in a fund more-favorable terms than others.
The proposed rules would also require private funds to undergo annual audits and to provide their investors—including pension plans and wealthy individuals—with more-detailed disclosures about their costs and performance.
SEC Chair Gary Gensler has said the changes will increase competition and transparency into an industry that he estimates collect hundreds of billions of dollars in fees per year.”
“Since the agency first proposed new rules for the industry last year, representatives of private equity, hedge funds and venture capital have met frequently with SEC officials to try to dissuade them, SEC meeting logs show. They have lobbied lawmakers to push back against the SEC’s plans and formed a group to fight the final rules, which could differ from the proposal.
SEC officials have acknowledged that the industry is gearing up for a court battle.
‘There’s a whiff of litigation in the air,’ William Birdthistle, who heads the SEC division writing the private-funds rule, said at a May conference hosted by the Managed Funds Association, which represents hedge funds. Corbett said at the event that the MFA was preparing for a potential lawsuit.
The MFA has been vetting lawyers, looking for allies and developing legal strategies against the rules in case the SEC’s final version is similar to the proposal, Corbett said in an interview.
‘The negative impact on the industry is significant,’ Corbett said. ‘The word ‘existential’ I don’t think overstates it.’
The SEC rules would come in the midst of headwinds for some asset managers. Private-equity and venture-capital funds, which tend to invest in illiquid companies and are slow to mark down their valuations, are only beginning to show the effects of last year’s downturn in financial markets.
Benchmark private-equity returns turned negative for the year ended March 31 for the first time since the 2008-09 financial crisis, according to a Burgiss Group index that excludes venture capital. Venture funds posted their longest streak of negative quarterly returns in more than a decade, according to PitchBook Data.”
The adoption of these rules will require compliance in a way that may provide investors more visibility into what is happening with their money, but will certainly come with overhead and cost.
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About the Author
Daniel Pereira is research director at OODA. He is a foresight strategist, creative technologist, and an information communication technology (ICT) and digital media researcher with 20+ years of experience directing public/private partnerships and strategic innovation initiatives.
Informing your decisions with actionable intelligence
Informing your decisions with actionable intelligence