Investment executive warns Americans of ‘unprecedented’ SEC regulations for their pension funds | ET REALITY

Leaders in the investment industry are warning retirees and investors that regulations recently enacted by the SEC will make it much more expensive and expensive for managers to operate their funds and generate returns for America’s pension funds.

Bryan Corbett, president and CEO of the Managed Funds Association (MFA), said the “unprecedented” regulatory landscape emerging from the Biden administration, specifically the Securities Exchange Commission (SEC), is “targeting fund managers.” alternative assets”.

Since Gary Gensler served as President of the SEC, As of April 2021, it proposed more than 20 rules focused on investment managers, Corbett said. These fund managers who invest trillions of dollars in pension accounts are responsible for the retirement funds of millions of Americans.

“When compared to their predecessors, who made perhaps 20 over their entire terms in office, these rule proposals will have significant costs and consequences both for investors in our markets and for the competitiveness of U.S. markets,” Corbett explained.

The MFA represents the global alternative asset management industry of institutional investors who invest in pensions, non-profit organizations and university endowments to raise capital, invest and generate returns for their beneficiaries.

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“MFA has more than 150 member firms, including traditional hedge funds, crossover funds and private credit funds, which collectively manage nearly $2 trillion across a diverse group of investment strategies,” according to the organization’s website. “Member firms help pension plans, university endowments, charitable foundations and other institutional investors diversify their investments, manage risk and generate attractive returns over time.”

“So instead of promoting competition and more market participants, the SEC rules as a whole will make our markets less competitive since we have less funds,” Corbett said.

Corbett said the main focus right now is on a rule called the private funds proposal, which “for the first time will have the SEC in the middle of negotiations between sophisticated fund managers and sophisticated investors like pension funds.”

“The SEC seeks to prohibit certain terms and conditions that we believe exceed its current legal authority,” he added.

Corbett said there are also costs for alternative asset managers, who invest in pension funds, endowments and foundations and are relied upon to generate returns to fund retirements and college scholarships, but as a result of Chairman Gensler’s rules, investors will bear more costs. and have less access to funds. He called on Congress to use his power in the rulemaking process.

“They (Congress) have oversight, they have a responsibility to hold agencies accountable, and we think it’s important that they use that oversight authority to review rulemaking processes and make sure that regulators don’t exceed their legal authority.” , said.

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This year, President Joe Biden rejected a bipartisan bill That would have required investment fund managers to remain focused on providing the best performance for their clients without regard to a firm’s ESG score that rates them based on their stances toward racial justice, climate change and issues. LGBT when deciding where to invest money.

Additionally, a Department of Labor rule that went into effect in January allows managers to consider environmental and social issues in their investment decisions for the retirement funds of more than 152 million Americans.

If SEC regulations continue on their current trajectory, Corbett said MFA members involved in pension fund investments will have a harder time generating the returns they need to fund their pensions and retiree business goals.

“Funds will become more expensive, there will be a more competitive market and a pension fund will have less access and less ability to enter a fund, and they will have fewer options as part of their portfolio allocation,” he said. .

Additionally, Corbett said the regulations are harming America’s global competitiveness. She has long said there was concern that many of the anti-competitive regulations in Europe would influence the United States and set a regulatory precedent. Instead, there is now more concern that US regulations will influence European markets.

“We consider the SEC’s overregulation to be a poor example of what foreign regulators should do,” he said. “It’s really the SEC’s effort to impose a host of rules that affect every aspect of a manager’s business: how a manager invests, how a manager operates its business, and how it negotiates its terms and conditions with its investors.”

Corbett predicts there are three main factors based on conversations with Chairman Gensler, his staff at the SEC and other market participants.

“First, he (Gensler) believes that private funds have become too large and risky and so he seeks to control those risks, which we believe are non-existent,” Corbett explained. “Second, he believes the industry is too expensive. He is trying to reduce costs and fees in a way that we do not believe the SEC has the authority to do, and that trading should be left to the participants. From the market”.

“Finally, he has said that he believes the market is too large in terms of the number of funds,” he added. “He has indicated that he agrees with centralization in finance, which means less funds, resulting in less competition and fewer market participants.”

Instead, Corbett said the MFA wants to create a market that encourages the launch of new funds with new market participants.

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“That is what creates vitality in the capital markets of the United States and makes us the most competitive market in the world,” he explained. “That’s why we’re the biggest, the most liquid, and when we adopt rules that undermine those goals, we really damage our position in the global marketplace.”

Corbett explained that in addition to Gensler’s regulations, which he believes will impose more costs and result in fewer funds being released, the Financial Stability Oversight Council has begun analyzing the growth of private credit and its role in the market. He highlighted the difference between private credit and banks, and why private credit does not pose a systemic risk.

“After Dodd-Frank, we’ve seen a lot of loans made by private funds, as the banking system has been constrained, private funds have stepped in to lend,” he said. “Major companies are borrowing from private funds. We think that’s critical to the growth of small and medium-sized businesses and we want to make sure policymakers don’t restrict that source of capital.”

“Private funds are not like banks, private funds do not have risks like those of banks, there are no depositors, there is no run risk,” Corbett explained.

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When contacted for comment, the SEC responded with the text of Gensler’s statement on the adoption of the rules on August 23.

“I am pleased to support this adoption because, by improving the transparency and integrity of advisors, we will help promote greater competition and therefore efficiency in this important part of the markets,” he said.