The SEC’s proposed private fund reforms would land hardest on mid-sized managers, Commission chairman Gary Gensler admitted under Congressional questioning.
“It would, potentially, frankly, lower the profits of the middle. That’s the efficiency—competition, competition would drive greater efficiency in the middle of the market, the asset managers,” Gensler said during a marathon appearance before the House Financial Services Committee. “But that’s going to help investors on one side and small businesses on the other side raising money from these private funds.”
Gensler’s appearance before the committee was his first since Republicans took control of the House in last November’s elections. Republicans have made Gensler one of the poster boys for their arguments against regulatory “overreach.”
Under Gensler, the Commission has proposed 46 rules packages, according to the chairman himself, covering almost every corner of its realm (Republican representatives claimed the number of regulatory initiatives is more like 53-55, though some of them are existing rules that have been re-opened, some “supplemented.”)
Regulators have acknowledged that many of the rules, if adopted, will raise the costs of doing business. Gensler has said repeatedly that he is worried that investment-advisers’ and broker-dealers’ fees, expenses (and the gray-area business habits that help them increase those fees and expenses) are clotting American markets.
But representatives called into question Gensler’s competence as part of their attack, highlighting the Commission’s attrition rate (Republican representatives said it was close to 10 percent; Gensler claimed it was merely 6-7 percent, “in line with other agencies.”)
It wasn’t just Republicans showboating their distaste for regulation – some of the toughest questions and comments during April 18’s hearings came from Gensler’s fellow Democrats.
Rep Ritchie Torres, D-NY, called into question a number of the Commission’s priorities under Gensler, including its focus on American crypto firms over financial stability threats from abroad. He called the chairman’s payment-for-order (Regulatory Compliance Watch, subscription) flow reform proposals “perverse.”
And he pressed Gensler on what he was hoping to accomplish with his private fund reforms.
“When I see returns as high as 16.6 percent,” Torres said, referring to the returns achieved by one of his native New York’s pension plans, “I have a concern that the SEC is trying to fix what ain’t broken.”
Rep Josh Gottheimer, D-NJ – considered by some the preeminent champion of the private funds industry on the Hill – echoed Republican worries about “the unusually short-fused rush into rulemaking.” Of the 46 rules packages the Commission has proposed under Gensler, 27 of them had comment periods of 45 days or less, Gottheimer said.
All in, regulators have put more than 4,000 pages of proposed regulation before the public, with more than 2,500 oft-technical questions in them.
“I’m concerned that this will limit stakeholder engagement, especially for small businesses without large government affairs staffs that can’t keep up,” Gottheimer said.