FOR IMMEDIATE RELEASE
Feb. 9, 2021
SEC Private Funds Plan Will Protect Worker Investments and Promote Fair Markets
Today’s proposal from the Securities and Exchange Commission is a key step in bringing much-needed transparency for investors and accountability in the vast private funds market. The reforms it proposes would give pension funds that invest workers and retiree savings much more information, allowing them to better protect hard-earned dollars.
“Given the explosive growth of private funds over the past decade, the SEC must seek greater disclosure and transparency so that investors have the information they need to make sensible decisions,” said Andrew Park, senior policy analyst at Americans for Financial Reform. “There are now more private funds alone than publicly listed companies, so there are trillions of dollars at stake here. The burden is on this industry to persuasively substantiate any objections to these very reasonable SEC proposals.”
There is a large and growing body of evidence and analysis that private equity firms in particular tend to overstate the returns they deliver to investors while failing to clearly disclose fees and charges. The SEC has repeatedly, publicly warned that managers of private funds have misled investors about fees and returns on a large scale. And as Chair Gensler has pointed out, fees and expenses amount to roughly $250 billion each year.
“The SEC proposals rest on the bedrock mission Congress gave the SEC at its creation to protect all investors and promote fair and efficient markets,” Park said. “Wealth that private fund managers are able to siphon off because they work in the shadows means billions of dollars less for workers and their families in retirement. The current broken system also results in billions of dollars less investment in the real economy to build businesses and create jobs. The lack of transparency and accountability for private funds makes a handful of rich people even richer and worsens inequality and the racial wealth gap.”
Beyond the SEC’s plan, there are many additional changes, both regulatory and legislative, needed to deal with abuses in private markets. Today, the SEC is proposing to:
- Require greater transparency to investors around fees and expenses, which are now often extremely opaque, so that pension funds and other institutional investors know how much they will be charged as they evaluate investment alternatives.
- Require that private funds provide more transparent and comparable performance figures to investors so that pension funds and other institutional investors can consider options based on reliable information.
- Restrict waivers that free private fund managers from basic fiduciary duties and take other steps to address conflicts of interest.
- Disclose or in some cases prohibit secret side agreements that worsen information asymmetries between investors and fund managers.