MFA Submits Comment Letter in Response to the SEC’s Dealer Proposal

 

May 27, 2022

Bryan Corbett: “This rule would result in some alternative asset managers limiting their activity or exiting the fixed income and treasury markets altogether, harming both markets and pensions, foundations, and endowments that rely on alternative asset managers to deliver for their beneficiaries.”

WASHINGTON, DC –Managed Funds Association (MFA), the trade association for the alternative asset management investment industry, today submitted a comment letter to the U.S. Securities and Exchange Commission (SEC) in response to its proposed rule to redefine and expand the definitions of “dealer” and “government securities dealer.” MFA’s letter emphasizes that the rule would have unintended consequences for institutional investors and markets and calls on the Commission to exclude private funds and their advisers from the proposal.

“Alternative asset managers are not broker-dealers, and our members are already registered with the SEC, which requires them to submit in-depth information on their activity,” said MFA President and CEO Bryan Corbett. “This rule would result in some alternative asset managers limiting their activity or exiting the fixed income and treasury markets altogether, harming both markets and pensions, foundations, and endowments that rely on alternative asset managers to deliver for their beneficiaries. If adopted as proposed, the rule would run counter to the Commission’s intentions by increasing concentration in the market, decreasing market resilience and stability, and leading to increased systemic risk.”

MFA asserts that private funds and their advisers are already subject to regulations that address the Proposal’s main objectives. From the letter:

“Over the years, the Commission has implemented a robust system of registration, compliance evaluation, custody requirements, recordkeeping, filings, regular exams, and enforcement oversight of investment advisers to private funds. These private funds also trade predominantly with or through registered broker-dealers, thus subjecting their trading activities to extensive margin, risk management, and reporting requirements.”

MFA argues that many private funds would reduce their trading activity or leave the Treasury markets altogether, leading to unintended consequences for investors and markets. From the letter:

“Rather than face these consequences, many private funds would curtail their trading or possibly exit the market. The Proposal would thus harm those funds, their investors, and, ultimately, the market as a whole, through reduced investment opportunities, reduced competition, greater concentration and systemic risks, less efficient price discovery, and greater costs of capital-raising, for companies and the U.S. government.”

MFA calls on the Commission to hold on to the proposal until further analysis can be completed. From the letter:

“In light of these issues, we recommend that the Commission refrain from adopting the Proposal until it has conducted a sufficient cost-benefit analysis and taken steps to clarify the Proposal’s scope and fit it within the Commission’s statutory authority.”

MFA’s full comments to the SEC’s proposed rule can be found here.

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About the Global Hedge Fund and Alternative Asset Management Industry

The global hedge fund and alternative asset management industry, including hedge funds, credit, managed futures, and hybrid funds that invest in private companies, has assets under management of $4.3 trillion (Q2 2021). 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 the Managed Funds Association

Managed Funds Association (MFA) represents the global hedge fund and alternative asset management industry and its investors by advocating for regulatory, tax, and other public policies that foster efficient, transparent, and fair capital markets. MFA’s more than 150 member firms collectively manage nearly $2.6 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. MFA has a global presence and is active in Washington, London, Brussels, and Asia. www.managedfunds.org