As proponents of payment for order flow know, Securities and Exchange Commission chairman Gary Gensler has more than one strategy for stamping out Street practices which he does not like. Sure, he and his colleagues could just outright ban them, as they may well do to the “consulting fees” charged by private-equity firms to the portfolio companies they own, or to hedge fund managers’ somewhat unsavory practice of passing on their own legal fees from misconduct allegations to their investors. But the busiest little regulator on the Potomac prefers an older strategy: shame, or, as Gensler prefers it, “boosting efficiency, competition and transparency.” By this he means forcing asset managers to disclose, in standardized, easily-understood format, all of the ways they charge clients money, by which those clients can recoil in horror from the things they’re paying for, or from how much more they’re paying than clients in a different fund, and pull their money or force their managers to adopt less underhanded and ultimately cheaper fee structures.
William Birdthistle, director of the Division of Investment Management at the SEC, said the U.S. watchdog remained committed to increasing transparency and competition in the industry…. The SEC in February voted to propose heightened regulations meant to scrutinize how private fund advisers charge fees to investors and measure fund performance. In August it proposed a rule to improve the quality of disclosures it receives from large hedge funds about their investment strategies and leverage….
Birdthistle added that increased competition and transparency will lead to lower fees and better liquidity arrangements, saying, "with fees going down that will mean more money going to end investors."
Of course, that thesis only holds if the target of such ire is able to feel shame. And, as the alternative investments industry has made clear, its members are not so able.
"While the SEC believes their rulemaking agenda is in the interest of investors, their proposals will ultimately raise fees and limit information and investment opportunities," said [Managed Funds Association chief counsel Jennifer] Han.
U.S. SEC Aims to Help Shrink Hedge Fund Fees for Investors [Reuters via U.S. News & World Report]
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