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U.S. Regulatory Winds Favoring Asset Managers

 

When the Securities and Exchange Commission (SEC) Office of Compliance Inspection and Examinations detected material irregularities in fees, incremental advances were made that led to many large partnership firms paying settlements to their investors. As a result, the industry is seeing a new era of asset owner advocacy; however, several recent developments in the U.S. seem to be in the favor of asset managers.

The Private Equity Growth Capital Council—sometimes referred to as the American Investment Council—is lobbying for the repeal of certain aspects of The Dodd–Frank Wall Street Reform and the Consumer Protection Act, both of which will decrease transparency. In June 2017, two legislative events occurred that could potentially decrease private equity transparency.

The U.S. Supreme Court has effectively limited the SEC’s use of disgorgements by setting a five-year limit on the surrender of inappropriate profits. This limit on civil monetary penalties is important to private equity asset owners as partnerships last 10 or more years. The use of disgorgements was seen as a major tool available to the SEC in deterring wrongdoing, including the many cases of fee inaccuracies and irregularities.

The Financial CHOICE Act—which focuses on efforts to repeal investor protections from The Dodd-Frank Wall Street Reform—passed the House on June 8, 2017. If private equity aspects of this Act become law, this will be a major setback for asset owner transparency as it will reduce the ability of the SEC to monitor alternative asset firms.

Conversely, across the Atlantic, the winds appear to be favoring the asset owner. In June 2017, the United Kingdom Financial Conduct Authority (FCA) announced plans to appoint an independent individual to act as a convener to lead a group creating a standardized template of costs and charges transparency to be disclosed to investors. This standard would affect private equity and hedge funds and would be above and beyond the requirements of MiFID II.

 
Robert Angel

Robert Angel

Head of Regulatory Services, Product Solutions Group, EMEA
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Robert Angel

Robert Angel

Head of Regulatory Services, Product Solutions Group, EMEA
 
Robert joined Northern Trust in September 2013 as head of Regulatory Services, Product Solutions Group, EMEA. The Regulatory Services team acts as a consolidated point of contact on our portfolio of regulatory projects, with responsibility for regulatory client communication, and the services and products that Northern Trust can offer our clients in the regulatory space.
 
Prior to joining Northern Trust, Robert spent over 16 years at Merrill Lynch (now Bank of America Merrill Lynch) in Prime Brokerage and during this time ran the hedge fund client service, client consulting, product development and client on-boarding teams.

 

 

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