The U.S. Securities and Exchange Commission is trying to fend off a legal challenge from the multitrillion-dollar private fund industry to agency rules requiring hedge funds and private equity firms to detail quarterly fees and expenses to investors, Bloomberg News reported. The regulator is set to face off Monday against the Managed Funds Association and other trade groups in a hearing before a three-judge panel of the U.S. Fifth Circuit Court of Appeals in New Orleans. In addition to fee disclosures, the rules adopted by the SEC in August would prohibit firms from allowing some favored investors to cash out more easily than others — unless those deals are offered to all fund investors. The SEC under Chair Gary Gensler has been tightening its grip on private funds, and the rules would bring increased transparency to a fast-growing industry known for its opaque and complex layers of fees. The industry groups, including the American Investment Council, argued in the lawsuit they filed a week after the rules were adopted that they would “fundamentally change the way private funds are regulated in America.” The groups said that private equity investors are among the most sophisticated in the world and would not be funneling their money into an industry if it was in need of a “government overhaul.” Lawyers for the industry also contend the SEC exceeded its authority in adopting the rules. But the SEC claims it’s working within its authority under the 2010 Dodd-Frank Act. The agency has said in court filings that the rules “are a flexible and measured approach to resolve problems affecting investors and their stakeholders.”
