Gensler, US SEC Chair, "Private Fund Fees Complex... Reviewing New Regulations"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Park Byung-hee] Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC), has targeted the $4.2 trillion private equity market.

In a keynote speech at an event hosted by the Institutional Limited Partners Association on the 10th (local time), Chairman Gensler announced that he is considering new regulations to analyze private equity fees and returns.

Gensler mentioned management fees, performance fees, transaction fees, and advisory fees, stating that private equity has a complex fee structure and expressed curiosity about whether private equity investors have sufficient transparency to accept such fees.

With the advent of a low-interest-rate era due to COVID-19, the private equity market has shown rapid growth. The relatively high investment returns of private equity have attracted attention.

According to financial information provider Refinitiv, the scale of mergers and acquisitions (M&A) supported by private equity reached $818.4 billion through the third quarter of this year, marking a record high. Last year, it was only $315.2 billion.

Competition among private equity firms is also intensifying. Mark Rowan, CEO of Apollo Global Management, stated in an interview with The Wall Street Journal (WSJ) last month that they aim to reach $1 trillion in assets under management by 2026. This is a declaration to compete with Blackstone, which announced the same $1 trillion target for 2026 in 2018, for the top spot in the industry.

As of the end of the second quarter this year, Blackstone’s assets under management stood at $684 billion, while Apollo’s were $472 billion. Apollo’s assets under management are about 70% of Blackstone’s, showing a significant gap.

Apollo can significantly increase its assets under management by completing the acquisition of insurance company Athene Holdings in January next year. As competition among private equity firms intensifies, acquisitions of insurance companies by private equity have recently increased.

Blackstone acquired a 9.9% stake in American International Group (AIG)’s life insurance and pension division for $2.2 billion in July. At the time, Blackstone stated, "We have signed a long-term contract managing $50 billion in life insurance and retirement investments and plan to increase assets to about $100 billion over the next six years."

KKR acquired life insurer Global Atlantic Financial Group in July last year. With the acquisition of Global Atlantic, KKR increased its assets under management by about $70 billion.

Chairman Gensler expressed his intention to examine whether private equity firms are earning excessive profits and whether investors are bearing unfair losses as the private equity market rapidly expands. He said, "It is time to investigate the rapid growth and changes in private equity," emphasizing his commitment to enhancing transparency to protect investors.

Private equity and hedge funds manage approximately $9 trillion in assets, with annual fees amounting to $250 billion.

This content was produced with the assistance of AI translation services.