US Private Equity New Regulation ... "No Special Privileges for Institutions Only"

U.S. financial authorities have introduced new regulations to enhance the transparency of private equity funds and improve sales practices.

Gary Gensler, Chairman of the U.S. Securities and Exchange Commission (SEC). [Image source=AFP Yonhap News]

On the 23rd (local time), according to the Wall Street Journal (WSJ) and others, the U.S. Securities and Exchange Commission (SEC) approved a regulatory proposal aimed at preventing conflicts of interest in private equity funds such as hedge funds and private equity funds (PEFs) engaged in management participation.

The new regulatory proposal requires private equity funds to provide investors quarterly updates on fund performance, fees, expenses, and compensation to protect investors, and to submit audited reports annually.

Additionally, the proposal prohibits offering preferential trading terms that could negatively affect other investors to only certain investors. Until now, the private equity industry has granted preferential terms only to large clients to attract funds from major institutional investors, excluding general investors; this regulation aims to curb such discriminatory practices.

Furthermore, the proposal includes measures to strengthen investor protection, such as prohibiting fees for services not provided.

With the passage of the regulation, well-known hedge funds such as Citadel, Bridgewater Associates, and Millennium Management are all expected to be affected.

This regulatory approval reflects concerns that private equity funds have been subject to looser oversight by financial authorities compared to public funds. Earlier, SEC Chairman Gary Gensler emphasized the need to enhance transparency when he unveiled the regulatory proposal in February last year, citing the growing importance of private equity funds due to their expanding asset size and the inclusion of pension funds among their major investors.

Currently, the total assets managed by the private equity industry in the U.S. have grown to approximately $2.5 trillion (about 3,300 trillion KRW).

On the other hand, the American Investment Council, representing the industry, opposed the new regulations, stating that "the new rules are unnecessary and may not help innovation or global market competitiveness," and announced plans for legal action by private equity funds.

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