Back from a European holiday and need to catch you up on a few things.

Let me start with new regulations of SEC-registered advisers to private equity and hedge funds.  In a now-familiar pattern for increased regulation (approval by a 3-2 vote with all Democratic Commissioners in favor and both minority Republican Commissioners opposed), the Commission has materially tightened the practices of such advisers:

Advisors must now render quarterly reports to investors disclosing performance and costs, and an annual audit with a fairness or valuation opinion in connection with any opportunities to sell positions through arranged transactions.

The SEC will now permit costs incurred in most government investigations or other compliance matters only if disclosure is made to investors.

The usual practice of affording large or early investors better investment terms now also must be fully disclosed, and if preferential redemption rights are to be granted the SEC will have a chance to prohibit such rights based on SEC judgment’s that the preference creates material adverse effect on other investors.

I confess not yet to have read the new regulations, relying for the above upon review of several lawyerly sources.  If any reader wants to do a deep dive, I can link you to the 660 page SEC pronouncements.  Chairman Gensler has ruffled many feathers with his activist agenda, and not just concerning crypto and NFTs; this regulatory foray into well-functioning sophisticated markets with sophisticated parties is another example of his regulatory inclinations.

Logic suggests the new reporting regimes will incur advisor costs which will increase fees passed on to the investing public.  The cost-benefit analysis for the investors is never easy to  gauge….