Letters to Regulators: Letter From 29 Signers to the SEC on Passing Strong Final Rules on Private Fund Advisers to Protect Investors and the Financial System

View or download a PDF of the letter here.

Chair Gary Gensler
Securities and Exchange Commission
100 F St NE
Washington, DC 20549 

February 21, 2023 

Chair Gensler, 

The following 29 undersigned organizations and individuals urge the Securities and Exchange Commission (“the Commission”) to finalize a strong set of its proposals that bring much needed transparency to the $18 trillion in private funds and provide investors in those funds with a detailed breakdown about their investments that they are not able to currently obtain to make informed investment decisions. 

As the Commission itself has found, the $18 trillion in gross assets of private funds made up predominantly of hedge funds and private equity firms now is nearly the same size as the $23 trillion in assets in the banking system.1 However, unlike banks whose assets are subject to oversight by the Federal Reserve, Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC), private funds have nowhere near the same level of reporting requirements to both regulators or their investors. 

Despite the much lighter reporting requirements, policymakers still have been willing to backstop private fund losses with public funds once a decade starting from the bailout of hedge fund Long Term Capital Management in 1998, the Great Financial Crisis of 2008, and in March 2020. 

The SEC’s expansion of Form PF is critical to ensuring policymakers and other regulators have the insight they need ahead of an economic downturn 

The inherent lack of transparency in the $18 trillion in private funds leaves policymakers in the dark as to the risks to the financial system in an economic downturn, leading Federal Reserve Chair Jerome Powell recently to state that private funds require structural changes.2 The SEC has the authority to help provide policymakers with the adequate information they need to make informed policy decisions. 

We are therefore calling for the Commission to follow through with its proposals and issue a final rule that among its other proposals:

  • Requires private funds to disclose all of their individual investments, financing associated with them, and investments elsewhere in the capital structure 
  • Hedge fund disclosure of withdrawals or losses of 20% of more of their Net Asset Value ● Defaults by a fund’s counterparty and material change in relationship with the fund’s prime broker 

Investors in private funds do not have the necessary information nor resources to properly evaluate their investments requiring the SEC to intervene 

The Commission also has a critical role in improving the inefficient and dysfunctional way that investors currently negotiate investment terms in private funds, a process which often leaves them without the basic information necessary to evaluate their investments. 

Such an antiquated process has unfairly allowed for the transfer of billions of dollars in wealth from public pensions, university endowments, foundations, and other institutional investors to the private fund advisers who have been able to exploit the current system’s inefficiencies and opaqueness. 

Some of the largest investors in private funds continue to be unable to receive basic information from their advisers including a breakdown of the fees and expenses they are being charged.3 

Therefore the Commission uniquely is in a position to collectively ensure that investors in private funds are adequately receiving basic but important information such as: 

  • Detailed breakdowns of the fees and expenses charged to them 
  • How the returns on illiquid investments are being calculated 
  • Whether other investors have special arrangements with the private fund adviser via “side letters” 

Similarly, the Commission has the authority under the Investment Advisers Act of 1940 to restrict certain fees from improperly being charged4 such as the highly questionable practice of collecting accelerated monitoring fees from portfolio companies when no actual service is being provided. The pro-rated division of those supposed fees among multiple private fund advisers also suggests that these are in fact backdoor dividends that are using a loophole to avoid paying taxes.5 


The $18 trillion private fund industry has been able to operate on a special set of rules and rely on outdated exemptions for decades, and it is therefore imperative that the SEC finalize rules consistent with its proposals to ensure that policymakers and other regulatory agencies have adequate information about the holdings and risks in private funds to properly safeguard the financial system and economy. 

Similarly, given the thousands of different investors that now invest in private funds, many of whom are investing public money, private fund advisers must be subjected to a minimum set of disclosures on the fees, returns, and other special arrangements being made so that those investors have the information they need. 


Americans for Financial Reform Education Fund 


American Federation of State, County, and Municipal Employees 

American Economic Liberties Project 

American Federation of Teachers 

Bargaining for the Common Good 

Better Markets 

Center for Economic Policy Research 

Communications Workers of America 

Consumer Action 

Consumer Federation of America 

Economic Policy Institute 

Good Jobs First 

Inquilinxs Unidxs por Justicia 

Institute for Agriculture and Trade Policy 

Interfaith Center on Corporate Responsibility

Laura Katz Olson 

National Education Association 

National Employment Law Project Revolving Door Project 

Public Citizen 

SOC Investment Group 

Strong For All Coalition 

Sunrise Project 

Texas Campaign for the Environment Transparency Task Force 

UNITE HERE Local 11 

United for Respect 

20/20 Vision 

cc: Commissioner Caroline A. Crenshaw Commissioner Jaime Lizárraga 

Commissioner Mark T. Uyeda 

Commissioner Hester M. Peirce