The SEC is ending its legal push to revive the Hedge Fund Fee Disclosure Rule, thus ending its fight for more transparency into hedge funds and private equity firms

Private equity fee disclosures have faced a setback in SEC Chair Gary Gensler’s efforts to push for greater transparency. The SEC chose not to meet a Tuesday deadline to request the Supreme Court to reinstate new disclosure rules for the private funds industry, according to a source familiar with the situation who spoke on condition of anonymity.

These rules, adopted by the SEC in August 2023, required private fund managers to provide investors with more detailed information about quarterly fees and expenses. Additionally, the regulations prohibited fund managers from allowing certain favored investors to cash out more easily than others unless similar opportunities were available to all investors.

However, industry groups immediately challenged the rules. In June, a three-judge panel from the 5th U.S. Circuit Court of Appeals ruled that the SEC had exceeded its authority. The SEC did not seek a rehearing with the full court, and the Supreme Court was the agency’s last option to overturn the decision.

Initially declining to comment, the SEC later stated that it made a "strategic decision" to prioritize other areas of its rulemaking agenda. "We’re proud of the rule and the benefits it would have conferred to investors in private funds," the SEC said, expressing disappointment with the appellate court's ruling.

The conclusion of this legal dispute marks a victory for industry groups, which have been mounting strong challenges against Gensler’s initiatives to regulate hedge funds and private equity firms. Gensler has repeatedly emphasized that private funds lack transparency and could pose risks to financial stability. The SEC may still revisit the issue in the future.

The contested rules were part of a broader set of regulations aimed at increasing oversight in the fast-expanding, multitrillion-dollar market for hedge funds and private equity firms. In its June ruling, the appellate court in New Orleans argued that the SEC had based its actions on a law designed to protect everyday investors, not the "highly sophisticated" investors involved in private funds.

Several industry groups, including the Managed Funds Association and the American Investment Council, led the challenge, with the National Association of Private Funds serving as the lead plaintiff.

On Wednesday, these industry groups praised the SEC's decision not to seek Supreme Court review. The Managed Funds Association reaffirmed its support for the appellate court’s ruling, and Drew Maloney, head of the American Investment Council, said, “The SEC made the right decision.”

The case is titled National Association of Fund Managers v. Securities and Exchange Commission, 23-60471, U.S. Fifth Circuit Court of Appeals (New Orleans).

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