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SEC chair seeks to scrutinize private fund fees

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Gary Gensler

(Reuters) — The chair of the U.S. Securities and Exchange Commission said Wednesday that the agency will consider new rules that scrutinize how private funds charge investors and measure performance.

Gary Gensler, in a keynote address to members of the Institutional Limited Partners Association, added that agency rules would address how funds use separate agreements with investors, so-called “side letters,” as a work-around to fund constitutions.

The regulator hopes the new rules will mitigate conflicts of interest between fund general partners, affiliates and investors.

Mr. Gensler also said he has asked staff for recommendations to enhance hedge fund reporting and disclosure through the agency's Form Private Fund, which is required for annual or quarterly disclosure in some cases, to help shed light for regulators on the activities of private fund advisers.

"Private funds have multiple levels of fees — among others, management fees, performance fees and for many private equity funds, portfolio company fees," Mr. Gensler said.

"I wonder whether fund investors have enough transparency with respect to these fees."

Armed with billions of dollars, buyout firms have taken advantage of what has been a record year for mergers and acquisitions, selling some of their assets for top dollar.

Private equity-backed M&A deals more than doubled to a record $818.4 billion in the first nine months of this year, up from $315.2 billion last year, according to Refinitiv.

While large buyout deals have been few and far between this year, some private equity firms have banded together to acquire companies for huge sums, raising expectations that such “club deals” could happen more often.

Mr. Gensler said he wants to get a better look at the fees associated with such mega deals.