WASHINGTON, D.C.—Today, the U.S. Securities and Exchange Commission (SEC) finalized a rule that will provide regulators with information they need to address the threat of systemic risks and investor harms posed by private funds. Stephen Hall, Legal Director and Securities Specialist, issued the following statement on the approved rule.
“One of the cardinal lessons of the 2008 financial crisis was that regulators must always have a comprehensive and clear understanding of the risks that are building up in the financial system to head off future meltdowns, crises, and bailouts. We’ve seen major strides in increasing transparency in some sectors, such as the derivatives markets, and it is past time for regulators to get a better grip on the private funds market. The rule finalized today will significantly enhance the quantity, quality, and timing of information the SEC and the Financial Stability Oversight Council (FSOC) receive regarding private funds, a notoriously shadowy sector of our financial markets.
“The importance of this reform is clear. Private funds, including hedge funds and private equity funds, have been steadily expanding. As observed during today’s open meeting, private funds are estimated to represent $25 trillion in assets. They also are investing in more diverse types of assets, with more interconnections to the financial markets, and they hold not just wealthy investors’ money but also the retirement assets of millions of Americans. Under the Dodd-Frank Act, the SEC has been collecting basic information from private funds on an annual or in some cases quarterly basis. But based on the past ten years of experience, the SEC has reasonably concluded that more transparency is necessary.
“This final rule will require private fund advisers to report more comprehensive and more timely information. For example, it will require large hedge fund advisers to file a report within 72 hours of a trigger event, including extraordinary investment losses, significant margin and default events, and events associated with withdrawals and redemptions. And all private equity fund advisers would be required to file an event report upon the occurrence of one or more trigger events within 60 days of each fiscal quarter end, including, for example, the removal of a general partner or certain fund termination events. This reporting will provide the Commission and FSOC with more timely information about events indicating the threat of investor harms or systemic risks arising from private funds.
“As with the buybacks rule also finalized today, the final rule on private funds reporting scaled back some of the provisions in the proposal, including extending the reporting deadline for the most potentially significant trigger events from 24 hours to 72 hours. But the fact remains that this rule will substantially increase regulators’ ability to monitor and respond to threats to investors and systemic stability that private funds may be incubating.”
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