William W. Clayton is an Associate Professor at Brigham Young University Law School. This post summarizes his recent comment letter to the U.S. Securities and Exchange Commission.
The SEC recently published a proposed rule (the “Proposal”) that would impose unprecedented mandatory disclosure obligations and various other forms of intervention in the private funds industry. [1] On April 21, 2022, I filed a comment letter in response to the Proposal. [2] My letter addresses what appears to be one of the most profound sources of disagreement between proponents and opponents of SEC intervention in the private funds industry: the question of whether investors and managers in private funds can be assumed to bargain effectively.
My comment letter has four primary objectives. First, it discusses the heightened importance of understanding the limits of private market bargaining as the SEC considers this new phase of regulatory activity. Second, it provides new insight into how private equity investors think about bargaining problems by introducing recent polling data obtained from institutional investors. Third, it encourages the SEC to be more explicit about identifying and articulating the bargaining problems that it believes are producing the problematic outcomes described in the Proposal, and it also calls for greater scholarly engagement with these issues going forward. An explicit assessment of private fund bargaining limitations should play a central role in the cost-benefit analysis of any regulatory interventions in this space. Lastly, it includes a brief discussion of certain of my papers that were cited by the SEC in the Proposal. My letter does not analyze the extent of the SEC’s formal rule-making authority in this area.
