• Sat. May 21st, 2022

NYSIF Supports Securities and Exchange Commission Proposal to Reform Private Funds

ByChad J. Johnson

May 5, 2022

NEW YORK–(BUSINESS WIRE)–The New York State Insurance Fund (“NYSIF”) today announced that it has sent a letter to the Securities and Exchange Commission (“SEC”) in support of the SEC’s proposal to strengthen regulation of private funds, including private equity, venture capital and hedge funds. If passed, the proposal would require private fund advisers to provide investors with greater transparency about fund fees, expenses and performance and would prohibit them from engaging in certain activities that harm investors.

“Over the past decade, private funds have seen explosive growth as institutional investors have invested heavily in them,” said Gaurav Vasisht, executive director and CEO of NYSIF. “But as investor demand has soared, regulation of private markets has not kept pace, producing a competitive imbalance favoring fund advisers over investors, which distorts markets. SEC is taking a critical step to level the playing field and provide investors with the information needed to make informed investment decisions.

Private funds control approximately $18 trillion in gross assets under management, with private equity assets alone doubling in less than five years. Growth is driven, in part, by institutional investors, such as state and local pension funds, university endowments, foundations, and nonprofits. As these investments expand, private funds will continue to play an increasingly important role in the daily lives of New Yorkers, whether saving for retirement or funding their education, and touching all aspects of the real economy.

However, as detailed in the NYSIF letter, some investors are at a serious competitive disadvantage. To access a fund, they often have to agree to one-sided contractual terms, such as those requiring investors to waive fiduciary duty to advise or pay fees for unperformed services. Investors also have to contend with a lack of consistent, standardized and reliable information on the total cost of their investment and fund performance and navigate an opaque process of entering into bespoke “side letters” with strings attached. undisclosed preferences for certain investors.

To address these challenges, NYSIF strongly supports SEC reform measures, which:

  • Require registered private fund advisers to provide standardized quarterly statements to investors detailing all fund fees, expenses and performance

  • Mandate advisors to obtain an independent audit annually and upon liquidation of a fund for each fund they advise

  • Prohibit advisers from engaging in activities contrary to the public interest, including requiring investors to waive the adviser’s fiduciary duty or charging fees for services not performed

  • Prohibit advisers from providing preferential terms to certain investors regarding redemption rights and information about portfolio holdings and exposures.

“Private equity markets suffer from uneven bargaining power and informational asymmetry that hurt investors,” Vasisht said. “The SEC’s proposal will stimulate competition, promote market efficiency, and help institutional investors like NYSIF meet their fiduciary obligations.”

About NYSIF

With approximately 195,000 policyholders, $1.8 billion in annual premiums, and $21 billion in investments, NYSIF is New York State’s largest workers’ compensation and disability insurer and among the ten largest nationally. A competitive, not-for-profit company, NYSIF is legally mandated to provide low-cost coverage, pay benefits in a timely manner, and maintain a solvent insurance fund. It achieves these objectives as a fiduciary by investing its premium income in various asset classes.

For more information, visit nysif.com.