The SEC’s Private Fund Advisor rule has been vacated by the courts.
In August 2023, the SEC enacted the new rules, claiming they would enhance the regulation of private fund advisers by requiring annual audits, fairness and valuation opinions, and quarterly statements.
SEC Chairman Gary Gensler supported the new rules stating that they would enhance “advisers’ transparency and integrity” thus promoting competition.
On the other side, SEC Commissioner Hester Peirce described the rules as “ahistorical, unjustified, unlawful, impractical, confusing, and harmful.” She did not support the new rules as the separate parties are sophisticated, negotiating agreeable terms and thus not in need of government intervention.
The National Association of Fund Managers challenged the rule, which generated “widespread industry pushback.”
The US Chamber of Commerce also challenged the rule, filing an Amicus brief supporting the lawsuit. The Chamber described the rules as “arbitrary and capricious in enacting the rule without assessing its economic effects or articulating any meaningful, non-speculative benefit.”
PanAdvisor reported that the rule was vacated by the US 5th Circuit Court of Appeals this past Wednesday by a 3 to 0 vote. The court challenged the SEC’s expansion of authority, which was deemed to be outside its remit.
The same report did not indicate if the SEC has decided whether or not to appeal the ruling.
The SEC, under Chairman Gary Gensler’s leadership, has taken an aggressive approach to new regulations, with some lambasting the Commission as pursuing a highly political and left-wing agenda while ignoring a primary mission of facilitating capital formation.