Hedge and private equity fund managers are whining to whoever will listen (mostly Republican senators) that Gary Gensler’s plans to throw some additional light on opacities of their art more or less presage the end of civilization. The rules that would require more uniform disclosures and subject the funds to regular Securities and Exchange Commission audits, plus other annoying planned demands like “keep your conflicts of interest in check” and “stop making investors pay the legal costs for your own frauds,” and also maybe stop outright lying to your clients, are “unnecessary.” “Paternalistic.” Likely to “curb the entrepreneurialism [and] flexibility… that make private funds an increasingly attractive option.” “Unfair.” They’ve been whining so much that Gensler agreed to give them an extra month to vent their spleen.
By far the most common criticism is that all these new bookkeeping requirements will cost money, money which will not them be able to fund the retirements of the cops, firefighters, nurses and teachers whose pensions rely on alternative investments to juice their returns. The new rules “will not strengthen pension returns,” warns American Investment Council President Drew Maloney. The same group adds that the rules will not only curb entrepreneurialism and flexibility but also “investment returns.” The Managed Fund Association chimes in that they’ll only “harm the most sophisticated investors.”
To which those most sophisticated investors say, “Sounds good to us.”
University endowments, insurance funds and retirement funds serving teachers and firefighters are urging the Securities and Exchange Commission to move forward with a proposed rule that would ensure private-fund investors receive annual audits and quarterly statements…. [Ohio Public Employees Retirement System Executive Director Karen Carraher] said it would reduce investors’ need to painstakingly negotiate basic disclosures from private funds and help them more easily spot self-interested behavior by private-fund managers.
The investment chief of one major U.S. pension plan told The Wall Street Journal it takes his accounting staff approximately six months to extract and standardize information from private-fund managers’ reports to compare and track costs.
And that’s only the information they’re actually able to pry from their managers. Because, as it turns out, Republicans are a bit optimistic to suggest that these big, powerful, sophisticated investors with their half-trillion dollars in allocation power can just demand whatever data they want from the funds, which will obviously be powerless to refuse.
“A frequent refrain that the [New York State Common Retirement Fund] receives in response to its request for improved fund terms that would benefit all investors is: ‘respectfully declined,’” the fund’s chief investment officer wrote in a comment letter to the SEC…. “This is what you’re hearing from investors: ‘We’re nervous about losing our allocation so we don’t want to be the squeaky wheel,’” said William Clayton, a professor at Brigham Young University’s law school who conducted the poll at an October conference and made the data public in a comment letter.
Stripped of these bad-faith (and also untrue) arguments, at least one industry champion is saying the quiet part out loud.
“It doesn’t strike me as particularly unfair that people who have had the strongest performance are the people who are able to negotiate terms that are to their benefit,” [Ropes & Gray’s Jeremiah] Williams, who is also a former member of the SEC division of enforcements’ asset-management unit, said in an interview.
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