Proposal would increase industry consolidation, reduce competition, and harm returns for institutional investors, including pensions, foundations, and endowments.
Washington, D.C. – Managed Funds Association (MFA) urged the Securities and Exchange Commission (SEC) to withdraw its Predictive Data Analytics proposal in a comment letter submitted today. MFA’s letter details how the proposal improperly places a retail investor regulatory framework on alternative asset managers who work for sophisticated, institutional investors and why that’s bad for markets and the U.S. financial system.
The letter highlights that the rule is overly broad and goes beyond the SEC’s stated goal of protecting retail investors from conflict-of-interest issues pertaining to the use of emerging technologies. The proposed rule’s definition of technology encompasses nearly every aspect of an adviser’s business, including technology such as basic Excel models and calculators. Its definition of “conflict of interest” includes any instance where an adviser receives any benefit even if the fund and its investors also benefit.
As a result of the broad definitions, the proposal will require advisers to halt operations instead of using disclosure and consent to mitigate conflicts whenever an adviser benefits from the use of a covered technology. This will disincentivize the use and development of technology and delay the most basic elements of portfolio management and client service, harming the ability of alternative asset managers to generate returns for institutional investors, including pensions, foundations, and endowments.
“The SEC’s Predictive Data Analytics proposal’s broad definitions will halt alternative asset managers’ business operations and stifle the use and development of financial technology. The proposal will harm markets, advisers, and institutional investors–including pensions, foundations, and endowments–by reducing the number of market participants and driving up the costs of investing,” said Bryan Corbett, MFA President and CEO. “The proposal exceeds the SEC’s stated goal in a manner that is unworkable for the alternative asset management industry. The SEC should withdraw the proposal.”
Additionally, MFA’s letter emphasizes that the proposal treats sophisticated, institutional investors as if they are retail investors. Congress designed a different regulatory regime for institutional investors. The proposal ignores statute and decades of precedent by introducing requirements that would raise costs, and make it untenable for many managers, especially small and emerging managers, to manage outside capital, forcing them out of the market, and ultimately reducing investment choice for institutional investors.
MFA’s letter to the SEC is available here.
About the Global Alternative Asset Management Industry
The global alternative asset management industry, including hedge funds, credit funds, and crossover funds, has assets under management of $4 trillion (Q4 2022). The industry serves thousands of public and private pension funds, charitable endowments, foundations, sovereign governments, and other global institutional investors by providing portfolio diversification and risk-adjusted returns to help meet their funding obligations and return targets.
About Managed Funds Association
Managed Funds Association (MFA), based in Washington, DC, New York, Brussels, and London, represents the global alternative asset management industry. MFA’s mission is to advance the ability of alternative asset managers to raise capital, invest, and generate returns for their beneficiaries. MFA advocates on behalf of its membership and convenes stakeholders to address global regulatory, operational, and business issues. MFA has more than 170 member firms, including traditional hedge funds, credit funds, and crossover funds, that collectively manage nearly $3 trillion across a diverse group of investment strategies. Member firms help pension plans, university endowments, charitable foundations, and other institutional investors to diversify their investments, manage risk, and generate attractive returns over time.