Today’s [Feb. 9, 2022] proposal represents a sea change. It embodies a belief that many sophisticated institutions and high net worth individuals are not competent or assertive enough to obtain and analyze the information they need to make good investment decisions or to structure appropriately their relationships with private funds. Therefore, the Commission judges it wise to divert resources from the protection of retail investors to safeguard these wealthy investors who are represented by sophisticated, experienced investment professionals. I disagree with both assessments; these well-heeled, well-represented investors are able to fend for themselves, and our resources are better spent on retail investor protection. Accordingly, I am voting no on today’s proposal.
As you have heard, if finalized, the proposal would impose a host of new mandates on private fund advisers. Among other things, registered private fund advisers would have to provide to investors detailed, standardized, quarterly information on fees, expenses, and performance, including data on portfolio investment compensation; to obtain annual financial statement audits by a Public Company Accounting Oversight Board-registered auditor; and to document in writing their annual compliance reviews. The proposal would require registered private fund advisers to provide investors with an independent fairness opinion for any adviser-led secondary transaction. Further, the proposal would prohibit all private fund advisers, even those not registered with the Commission, from directly or indirectly engaging in certain sales practices, conflicts of interest, and compensation schemes, including charging certain types of fees and expenses to a private fund or portfolio investment, allocating certain fees and expenses in a non-pro rata fashion, and providing certain types of preferential treatment.
