Enhanced transparency from private funds will boost confidence, assets: Moody’s

Proposed new U.S. rules for hedge fund and other private fund advisers will boost transparency and drive fees down, inspiring confidence and asset growth in the sector, says Moody’s Investors Service in a new report.

On Feb. 9, the U.S. Securities and Exchange Commission (SEC) proposed new reporting requirements for private fund advisers, which manage hedge funds, private equity and private credit funds.

“The rules, which are open for public comment, would require the advisers to provide investors more detailed reporting on fees, expenses and fund performance,” the rating agency said, adding that they also aim to curtail potential conflicts of interest.

This increased disclosure “will allow investors to compare fund performance and fees more easily, which is likely to put downward pressure on private fund advisers’ fees,” Moody’s said.

At the same time, the report said the rules are a positive for the sector, as they would likely boost investor confidence in private funds, “which is likely to translate into even higher growth rates for assets under management.”

The sector’s larger players, such as Blackstone Inc. and KKR & Co Inc., would easily be able to comply with the proposed new requirements, Moody’s said, but compliance costs would likely be more meaningful for smaller firms.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.