The Securities and Exchange commission (SEC) in the U.S have recently proposed a series of reforms, sharing plans to force greater fee transparency upon the asset management and hedge fund industries. This is following a particularly prickly year with 159 enforcement cases against private funds brought forward. 

In a press release, the SEC cited the need to adopt new legislation, where private funds will need to provide statements on fund performances, remuneration, fee percentages and expenses.

This is a big statement from the SEC, one that would transform disclosure standards and reduce the likelihood of investors receiving misleading information.

Why does it matter?

The new regulation would increase transparency by requiring hedge funds to provide quarterly statements detailing specific information regarding fund fees, expenses, and performance – measures that investors have increasingly called for.

Another reason this change matters, is simply because the industry is impacting more and more people. As SEC chair Gary Gensler states, 

“Private fund advisers touch so much of our economy. Thus, it’s worth asking whether we can promote more efficiency”

In these times of ESGs, NFTs and prevalent internet misinformation, more transparency makes sense. 

What do funds think of this?

It may surprise you to hear that there is not a blanket, universal disdain for the announcement.

Of course, it has its detractors, with one fund manager calling the measures ‘misguided’, whilst there has also been pushback from AIMA, the UK-based trade body, despite the new rules being less strict than what is already in place in the UK.

However, Muddy Waters Research – an investment firm focused on publicly traded Chinese companies, and it’s founder Carson Block, believes the new reporting requirements would benefit all market participants by “making it easier to gauge scepticism about a company and its propensity to be driven upward in a short squeeze, GameStop being the modern day poster child”.

What do Investors think?

Groups and trade bodies that represent the buy side of the investment community are touting the news as extremely investor-friendly.

 “These are a very investor friendly set of proposals. They will provide more leverage to investors,” said Igor Rozenblit, founder of the Iron Road Partners consultancy and a former senior SEC regulator.

Edgefolio viewpoint

Again, it’s no surprise as a fund marketing platform, but Edgefolio believes that transparency is a good thing, as are regular communications around performance to your investors. It’s partly why we have a mission statement of digitising the fund industry.

There is now, in 2022, a critical need for technology to be implemented across all layers of the investment process, from reporting on performance and fees, to marketing your fund effectively. It’s not uncommon to hear of fund managers with hundreds of millions in AUM operating with tech stacks that amount to little more than a spreadsheet, with a chronic over-reliance on manual processes.

With all things considered, we’re minded to agree with this line from Hedge Week, **’this latest increase in regulation makes spreadsheets now obsolete. Managers who do not adopt advanced reporting technology tools will not only struggle to compete, but they will meet the ire of regulators who will now require far more specific and frequent checks on their investments and milestones’.

Which is all a round a bout way of suggesting, that you should probably check out FundPortal and book a demo

Sources

*FT

**Hedgeweek