Posted by Brian T. Daly, Jason M. Daniel, and Barbara Niederkofler, Akin Gump Strauss Hauer & Feld LLP, on
Sunday, January 2, 2022
Any doubts over whether the U.S. Securities and Exchange Commission considers advisory fees to be a focus area for 2022 were dispelled over the past several weeks. In four separate public statements, the SEC and the Staff of the Division of Examinations have set the stage for a comprehensive review of the “market” for advisory fees in a private funds context, as well as for a potentially intense review of how fees are disclosed, calculated, and assessed by private fund managers.
The Tone at the Top
The highest profile statement on advisory fees came from SEC Chairman Gary Gensler, who, in recent remarks at the Institutional Limited Partners Association Summit, asserted that fees in the registered funds space have come down considerably since his time on Wall Street, while those in the private funds space have not dropped to the same degree—even as aggregate private fund assets have increased. Benchmarking off the “2-and-20 model,” the Chairman argued that advisory fees, when combined with fees for other services that private equity sponsors and other private fund managers may charge, are “pretty significant to our economy and our capital markets. Hundreds of billions of dollars in fees and expenses are standing between investors and businesses.” The Chairman announced that he has asked the SEC Staff, in an effort to stimulate “more competition” and “greater efficiencies” to the private funds space, to consider rulemaking recommendations aimed at “greater transparency to fee arrangements.”
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