Private fund critics and private fund allies are making what could well be their closing arguments on epoch-making SEC reforms.

The divided commission proposed a package of rules regulators, dubbed “Private Funds: Documentation of Registered Investment Adviser Compliance Reviews”, in January 2022. A “glitch” forced regulators to reopen the comment period in the early summer of 2022, affiliate title RCW reported in October (registration required). All in, there were 367 comments filed – nearly 100 of them since the comment period closed last June – and commissioners and staff have taken more than 100 meetings, SEC records show. Speculation has mounted that final rules are imminent.

The speculation does not come in a vacuum. The political calendar means time is not on the SEC’s side. Regulators say in the proposal they wanted to give at least a year to implement any new rules. The longer regulators take to finalize the rules, the closer they set any new rules to the gravitational pull of next year’s elections.

Closing arguments?

SEC Chairman Gary Gensler
Gary Gensler

There is a chasm between private fund critics and private fund allies. They agree about this much: if adopted as written, the new rules would change almost everything for almost everybody in the $25 trillion private funds industry.

Registered advisers would have to audit their funds at least yearly and send out quarterly statements to investors. They’d also have to obtain fairness opinions before they lead any secondary deals. Registered and exempt advisers alike would be forbidden from charging accelerated monitoring fees, passing along exam, enforcement or litigation expenses to investors, offsetting taxes by reducing claw backs, charging portfolio investment fees or expenses unless they’re pro rata, or borrowing from private fund clients. The new rules would apply to foreign firms, too. Private fund advocates have threatened to sue if the prohibitions in the proposal harden into law.

The proposal’s docket suggests that advocates are done arguing about specifics and instead are getting their main points into the public record. No one has taken an ex parte meeting at the commission since April 25, records show, even while key constituents have dropped large-scale analyses that read like last-minute pleas.

The latest is a May 15 letter from eight Democratic senators urging SEC Chairman Gary Gensler to keep his promises to reform advocates. “In the months since the SEC issued the private funds proposal,” they say, “we have been troubled by several trends in the private markets. The largest direct loans on record have been under consideration by groups of private fund managers and one of the biggest private credit investors has just launched a $1.5 billion fund that will be marketed primarily to high-net worth individuals. The investor bases for these deals, and of these funds, are increasingly retail investors who deserve the protections under the securities laws contained in the private funds’ proposal.”

Women- and minority-owned firms

SEC Commissioner Lizarraga
Jaime Lizarraga

The senators’ letter comes barely a month after the SEC received a 50-page analysis from the Committee on Capital Markets Regulation, a nonprofit advocacy group whose members include Citadel president and CEO Ken Griffin as well as executives from Millennium Management, BlackRock, Apollo Global and Morgan, Stanley. The reform proposals, the group says, risk “reducing returns for private equity fund investors and reducing the variety of investment strategies available to investors.” They “will also increase barriers to entry to the U.S. private equity fund market with a particularly negative impact on women and minority-led private equity fund advisers,” the group claims.

That last bit has become something of a theme for private fund advocates, including some Democrats. “Chair Gensler,” US representative Steven Horsford, a Democrat for Nevada, says in a May 3 letter, “I encourage you and your staff to reconduct the cost-benefit analysis for any proposals which did not originally adequately take into account the specific impact on minority-and women-owned firms.”

The American Investment Council raised similar concerns about women- and minority-owned fund managers in its comments last year, and Republican commissioner Mark Uyeda picked up on the theme in a speech last month. Democratic commissioner Jaime Lizarraga joined the commission after the private fund proposals went out for comment, but he has talked extensively about the need to make room for women and minorities in the industry. He was also a Hill staffer who helped bring the JOBS Act into law.

Lizarraga had been non-committal about private fund reforms until last month, when he said regulators needed “better visibility” into those markets.


Despite the polarization, advocates on both sides of the private fund reform divide have something in common: They are each gloomy about the prospects of their side winning.

Many private fund advocates were pleasantly surprised when the SEC’s final Form PF rules weren’t nearly as drastic as the SEC’s Form PF proposals, but many said they were resigned to years of litigation over the pending compliance rules. There were simply too many poison pills in the proposal, from the fee prohibitions to the negligence standards, for industry to swallow anything like the final brew, the advocates said.