Drew Maloney, the president and CEO of the American Investment Council (AIC), an advocacy group for the private equity industry, said his organization has joined a lawsuit against the U.S. Securities and Exchange Commission (SEC) over the agency's recent Private Fund Advisers rule. Maloney said during an interview with Nick Morgan, the founder of Investor Choice Advocates Network, that the SEC lacks the authority it needs to create the rule, and the agency also did not point to a specific problem that the new rule is intended to address.
"We've been the best-performing asset class for pension plans for the last 20 years," Maloney said. "We've outpaced the public markets by more than two times." He also highlighted that in the SEC's release, they "really didn't cite any harm they were trying to fix." Maloney emphasized that the SEC does not have the authority from Congress to implement such a rule, as evidenced by the two dissenting commissioners.
The SEC announced the finalized Private Fund Advisers rule on Aug. 23, with the intention of enhancing transparency and competition within the private funds market. The rule requires registered private fund advisors to submit quarterly statements to investors, describing fees, performances, and expenses. It also prohibits certain activities "contrary to the public interest and the protection of investors." Additionally, registered private fund advisors must provide investors with an annual financial statement audit for each private fund advised.
AIC joined multiple other industry groups in a lawsuit against the SEC over the new rule, arguing that the agency's attempt to restructure private funds' business operations is unwarranted and unlawful. Maloney stated that the rule would discourage competition, harm investors, reduce returns, stifle innovation, and impose costly burdens on funds of all sizes.
SEC Commissioners Hester Peirce and Mark Uyeda dissented from the rule, with Peirce describing it as "ahistorical, unjustified, unlawful, impractical, confusing, and harmful." Uyeda criticized the SEC for relying on questionable statutory authority and failing to consider the impact of its recent rules on investment advisors, particularly smaller and minority- and women-owned advisers.
Members of Congress, including Steve Scalise and Patrick McHenry, have also criticized the rule, accusing SEC Chair Gary Gensler of overstepping his authority.
The lawsuit against the SEC by the AIC and other industry groups reflects their belief that the SEC lacks the necessary authority to implement the Private Fund Advisers rule and that the agency did not adequately justify the need for the rule.
