Senators probe SEC chair on private fund rules; Motive Partners sees opportunities with enhanced regulations

Morning Hubsters!

This is Chris, on for Wire Wednesday.

Today we have reporting on a Senate hearing yesterday that dissected the SEC’s new private funds rules.

And a deal from Motive Partners that touches on opportunities created by enhanced regulations.

Regs
Senators took turns grilling SEC chairman Gary Gensler yesterday during a hearing in front of the Senate Committee on Banking, Housing and Urban Development – including on the commission’s new private funds rules.

As a reminder, the SEC finalized enhanced rules for private funds (including private equity) in August that would ostensibly increase disclosure and transparency. The rules would mandate, among other things:

Quarterly reporting on fees, performance and expenses;
Annual audits for each fund;
The same access to info for every LP in a fund;
Fairness or valuation opinions on GP-led secondaries;
LP consent to charge the fund for investigations or examinations

Perspectives fell along party lines, as you might imagine, with Republican senators accusing the SEC of overstepping its mandate, and Democrats urging Gensler to do more, especially around issues of climate change and cryptocurrency regulations.

Sen. Elizabeth Warren (D-MA) pressed Gensler to go further in regulating the private funds industry, which she said has eclipsed public markets in America in terms of AUM, but is still much less regulated.

“In other words, the SEC is carefully regulating a public market that handles only about one in four new investment dollars, while almost three out of four dollars are going into a private market that has much weaker rules. Those weaknesses are meaningful even after the rules change,” Warren said.

“How do you explain to the American people that the SEC, whose job is to make sure markets are honest, is standing by while private equity and the companies they own scoop up investor money without any public verification that the books are honest or that they aren’t hiding huge risks?”

Gensler countered that the new private funds rules, which the SEC finalized last month, would force registered investment advisers like private equity firms to file quarterly reports on fees, performance and side letters and annual audits of those documents.

Sen. Tim Scott (R-SC) said the SEC’s enhanced private funds rules would “hurt small businesses and push small and diverse fund managers out of the market, ultimately limiting jobs and opportunities for many in the local economy.”

And Sen. Chris Van Hollen (D-MD) pressed Gensler on risks associated with sovereign wealth funds, especially from China, becoming limited partners in private funds. Gensler said that was out of the SEC’s scope, but the commission is working alongside other agencies on potentially enhancing those protections.

Earlier this month, several industry groups sued in federal court to block the rules.

Opportunities

Speaking of the new rules, Motive Partners believes enhanced private markets regulation will drive demand for financial data, writes Nina Lindholm today on PE Hub.

Motive recently acquired a stake for $516 million in With Intelligence, a data provider for allocating, fundraising and business development in the public and private markets.

“We can see a further convergence of private markets with public markets’ infrastructure tools and data requirements,” Neil Cochrane, partner at Motive, told Nina.

That’s it for me! Have a great rest of your Wednesday. Hit me up with tips n’ gossip, feedback or book recommendations at christopher.w@pei.group or find me on LinkedIn.