After a months long effort to increase transparency, competition and efficiency among private fund advisors, the Securities and Exchange Commission (SEC) adopted new compliance rules and rule amendments that applies to all investment advisers, but which exempts the collateralized loan obligations (CLOs) and securitized asset funds.
The 600-page final Private Fund Advisers Rule requires that private fund advisers registered with the SEC publish a series of disclosures that effectively treat terms loans syndicated to institutional investors treated as securities.
"While we oppose multiple sections of the final rule, we are gratified that the Commission has determined that securitized assets funds, including collateralized loan obligations are exempt," the Loan Syndications & Trading Association said in a statement after the SEC published its rule. "The proposed rule would have imposed significant additional disclosure obligations that are of no value to CLO investors and would have prohibited or limited many important practices that are standard in the CLO market."
CLOs would have been inappropriately saddled with the new reporting requirements, which would have turned out to be redundant in some ways, the LSTA said. CLOs already are governed by highly negotiated indentures. Those indentures call for monthly disclosure of extensive asset-level data to investors.
CLOs, provide $1 trillion in capital to more than 1,000 U.S. companies, the LSTA added, underscoring the potential scale of disruption should the rule have bee adopted broadly.
As for the rules themselves, the SEC requires that private fund advisers provide investors with quarterly statements detailing fund fees, expenses and performance. SEC-registered private funds will also need to obtain and distribute yearly financial statement audits of each private fund it operates. In connection with an adviser-led secondary transaction, the audit needs to include a fairness opinion or valuation opinion, the SEC said.
In another to try and level the playing field among investors, says the SEC, private fund advisers are prohibited from providing investors with preferential treatment regarding redemptions and fund information if such treatment would negatively impact other investors.
The regulations go on from there, but for now the Loan Syndications & Trading Association, which had worked to avert the market disruptions that it said would result from the new regulations, says it is gratified that the SEC considered the comments and feedback they received from the organization and other parties.
Other loan funds are not completely out of the wood yet, and they remain exposed to what the LSTA says are unnecessary and burdensome compliance obligations.
