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Distressed-debt funds are about to close out the year with meager returns as junk bond and leveraged-loan investors continued to bail out many troubled companies, WSJ Pro Bankruptcy reported. Average returns for hedge funds focusing on distressed debt fell to 4.7 percent year-to-date, from 15.15 percent during the same period of 2016, according to Hedge Fund Research. Funds that focus on investing in distressed companies suffered from a scarcity of traditional investing opportunities as even many troubled companies found debt investors to rescue them. Moreover, investments in the distressed debt of many oil and gas companies — which fueled high returns in 2016 — went the other way in 2017 as those companies’ shares slumped after exiting bankruptcy. Buying up the debt of energy companies that filed for bankruptcy under mountains of debt as oil prices crashed in 2015 paid off in double-digit returns for many funds in 2016. But that trade contributed to losses in 2017 when reorganized companies emerged from bankruptcy only to see their shares slump in the stock market. The shares of Penn Virginia Corp. and SandRidge Energy Inc., for example, are down 32 percent and 22 percent, respectively, so far this year.

Commerce Secretary Wilbur L. Ross and the firm he founded were sued by three of his former colleagues who say WL Ross & Co. pocketed management fees from the general partnerships that handled its private-equity investments, the Wall Street Journal reported today. The lawsuit, filed yesterday in New York State court, claims that WL Ross covertly took management fees from general partner entities that the investment firm was only allowed to charge to passive, outside investors. David Storper, David Wax and Pamela Wilson said in the lawsuit they were required to invest their own money in return for stakes in those general partnerships, which they retained after leaving the firm. They said that their partnership interests were a “significant part” of their compensation packages but were diluted when the firm took fees it wasn’t entitled to. “These charges are barred by the limited partnership agreements governing the private-equity funds,” the lawsuit said. “The agreements allow management fees to be charged to fund investors, not the general partners.” The plaintiffs claim WL Ross reaped at least $48 million in management fees from the general partnerships that were “completely concealed” until the firm disclosed them on capital statements last year.

The Trump administration’s top securities regulator yesterday urged a review of how shareholders weigh in on public companies’ executive pay proposals, board of director nominees and contentious issues raised by activist investors, the Wall Street Journal reported today. Securities and Exchange Commission Chairman Jay Clayton told a New York legal conference that retail-investor participation in such elections is so low that it “may be a signal that our proxy process is too cumbersome and needs updating.” Clayton, who took over the commission in May, said that he would seek public input on how to overhaul the proxy-voting system. Clayton, a political independent, called out one particular weapon in the proxy tool kit: shareholder proposals. Under SEC rules, shareholders who own at least $2,000 worth of company stock can submit corporate-governance proposals for a vote. Stock-exchange operator Nasdaq Inc. and many public companies say that low threshold allows dissident shareholders and critics to impose proposals on the entire investor base.

An amendment on Monday to the tax bill winding its way through the U.S. House of Representatives appears to fulfill President Donald Trump’s promise to close the so-called carried-interest loophole private-equity firms enjoy while also preserving many of the benefits they derive from it, the Wall Street Journal reported. Since his days on the campaign trail, Trump has made repeated pledges to tax investment gains known as carried interest as ordinary income, which would do away with a rule allowing investment managers to pay a lower rate on a substantial portion of their compensation. Private-equity firms have pushed back, arguing that paying the lower long-term capital gains rate affords them an incentive to take investment risks that benefit the economy. Monday’s changes to the bill by House Ways and Means Committee Chairman Kevin Brady (R-Texas) would extend the period over which firms must hold an asset before it is eligible for the long-term capital gains rate, to three years from one. While that may hurt some hedge funds, private-equity firms, which tend to hold assets for longer, would be largely unaffected.