U.S. Bank announced several updates to previously shared leadership changes that will be effective Sept. 1.
“Our succession planning efforts have enabled us to move quickly and prudently to ensure continuity of leadership and service as senior executives have made personal and professional choices in their careers,” said Andy Cecere, chairman, president and CEO of U.S. Bank.
Terrance Robert Dolan, currently vice chair and chief financial officer, and John Stern, senior executive vice president and head of Finance, will assume new titles effective Sept. 1.
Dolan will serve as vice chair and chief administration officer overseeing the company’s combined Chief Administration Office. Stern will become senior executive vice president and chief financial officer.
The company had indicated earlier this year that these promotions were expected this fall, and both leaders have been effectively prepared for their new roles. Dolan will continue to report to Cecere, with Stern reporting to Dolan.
At the same time, Jeff von Gillern, vice chair of Technology and Operations Services, will retire on Sept. 1.
The company previously announced his intention to retire last November, and he has been gracious to stay on board to guide the company through the systems integration related to its MUFG Union Bank acquisition.
Von Gillern will remain on hand as an advisor to the CEO through the end of the year, but his remaining day-to-day responsibilities will shift to Dilip Venkatachari effective the first day of September. Venkatachari, senior executive vice president and chief information and technology officer, will then report directly to Cecere and serve as an executive officer of the company.
As rates have shifted higher, high yield is now living up to its name.
Since 2008, there have been relatively few opportunities to invest in high yield at yields above 8%. Many investors who allocated to the asset class during these times, benefited from double-digit total returns over the subsequent one-, three- and five-year periods.
Since 2008, the average annualized forward return for the Bloomberg US Corporate High Yield index ranged from approximately 11% to over 18% when the starting yield to worst was higher than 8%. The results are similar for the global high yield market.
Exhibit 1: Yields above 8% are relatively rare, and can present above-average total return potential Yield to worst for the Bloomberg US Corporate High Yield Index
Exhibit 1: Past results are not a reliable indicator of future performance.Source: Aegon AM and Bloomberg. Based on monthly Bloomberg. US Corporate High Yield Index data from January 1, 2008 to May 31, 2023. One-, three- and five-year returns are based on the forward annualized index return for months where the starting yield to worst was above 8%. Three-and five-year returns based on 44 months and 43 months, respectively, that had starting yields of more than 8%. Data is provided for illustrative purposes only. Indices do not reflect the performance of an actual investment. It is not possible to invest directly in an index, which also does not take into account trading commissions and costs. All investments contain risk and may lose value.
Assessing spreads and future return potential
While all-in yields are attractive, spreads remain around historical averages, leaving many investors grappling with the right time to increase their high yield allocation. Given the macro uncertainty, it is unlikely that we will see sustained spread tightening in the near term, although relatively tight market technicals can exert positive pressure.
Although spreads could be biased toward widening in the short term, we expect this could be more contained than during previous downturns given the higher-quality composition of the high yield market today relative to prior downturns.
Previous recessions have resulted in spreads widening above the 800 to 1,000 basis-point (bps) level. However, many of these periods were also during times of much lower risk-free rates. For example, the spread widening witnessed during 2020 occurred when rates were at historically low levels.
As a recession becomes more imminent, it is feasible that spread widening is more contained to around 600 to 700 bps given the higher-quality composition of the market and the solid fundamental starting point. Additionally, periods of spread widening could be short-lived, depending on the macro backdrop.
We believe that the majority of the Federal Reserve’s rate hikes have already occurred and that when the economy turns, rates are likely to decline, which could help offset some of the spread widening.
Additionally, after massive outflows from the high yield asset class in 2022, we may well witness a wave of inflows as opportunities arise and investors shift toward overweight, which could in turn provide supportive technicals and potentially result in swift spread tightening.
While it can be challenging to time the bottom or top of the market, we believe current yields can provide appealing long-term total return potential. In addition, we expect dislocations to emerge, presenting opportunities to capitalize on bouts of spread widening.
As shown below, the high yield index has historically generated average returns over 7% during the subsequent three- and five-year periods based on a starting OAS of 400 to 800 bps. The results are similar for US and global high yield indices.
Exhibit 2: 3-year forward high yield index returns based on starting OAS Bloomberg US Corporate High Yield Index (monthly data from January 1994 through May 2023)
Exhibit 3: 5-year forward high yield index returns based on starting OAS
Bloomberg US Corporate High Yield Index (monthly data from January 1994 through May 2023)
Exhibit 3: Past results are not a reliable indicator of future performance.Source: Aegon AM and Bloomberg. Based on monthly Bloomberg US Corporate High Yield Index data from January 31, 1994 – May 31, 2023. The 3- and 5-year returns are based on the forward annualized index return for months where the starting OAS was at or above the level shown. Data is provided for illustrative purposes only. Indices do not reflect the performance of an actual investment. It is not possible to invest directly in an index, which also does not take into account trading commissions and costs. All investments contain risk and may lose value.
Time in the market, not timing the market
Overall, we believe yields around 8% can present attractive opportunities for long-term investors. Depending on your appetite for volatility, this may not be the environment to stretch for unnecessary risk in lower-quality CCC bonds, particularly when there are interesting opportunities to generate solid returns in higher-quality high yield bonds.
In this environment, we think there is a case to be made for long-term investors to consider gradual increases to high yield in an effort to capitalize on attractive yields, provided they can weather some short-term market swings. Spread widening may present opportunities to further increase allocations, however timing the bottom or top of the market can be challenging. After all, it is time in the market, not timing the market, that matters in high yield.
Over the long term, high yield has tended to deliver competitive risk-adjusted returns compared to many other fixed income assets, and even equities. As such, we believe the structural case for high yield remains very much intact. And throughout the remainder of the year, we expect high yield has the potential to generate attractive carry and solid coupon-like returns.
Article written by Kevin Bakker, CFA and Co-head of US High Yield; Ben Miller, CFA and Co-head of US High Yield; Thomas Hanson, CFA and Head of Europe High Yield; and Mark Benbow, Investment Manager. All of them of Aegon Asset Management.
Los precios de la vivienda en Estados Unidos volvieron a aumentar por cuarto mes consecutivo en los 20 principales mercados metropolitanos en junio, según los últimos resultados de los índices S&P CoreLogic Case-Shiller, publicados esta semana.
“El índice S&P CoreLogic Case-Shiller U.S. National Home Price NSA, que abarca las nueve divisiones censales de EE.UU., registró una variación anual del 0,0% en junio, frente a la pérdida del -0,4% del mes anterior. El índice compuesto de 10 ciudades registró un descenso del -0,5%, lo que supone una mejora respecto al descenso del -1,1% del mes anterior. El compuesto de 20 ciudades registró una pérdida interanual del -1,2%, frente al -1,7% del mes anterior”, dice el comunicado al que accedió Funds Society.
En cuando la información interanual, Chicago se mantuvo en el primer puesto con un aumento interanual del 4,2%, Cleveland en el segundo con un 4,1% y Nueva York en el tercero con un 3,4%.
Nuevamente hubo una división equitativa de 10 ciudades que informaron precios más bajos y aquellas que informaron precios más altos en el año que finaliza en junio de 2023 en comparación con el año que finaliza en mayo de 2023; 13 ciudades mostraron una aceleración de precios en relación con el mes anterior.
En la comparación mes a mes, antes del ajuste estacional, el Índice Nacional de EE.UU. registró un aumento intermensual del 0,9% en junio, mientras que los Índices Compuestos de 10 y 20 ciudades también registraron aumentos similares del 0,9%.
Después del ajuste estacional, el Índice Nacional de EE.UU. registró un aumento intermensual del 0,7%, mientras que los Índices Compuestos de 10 y 20 Ciudades registraron aumentos del 0,9%.
“Los precios de la vivienda en Estados Unidos siguieron aumentando en junio de 2023”, afirmó Craig J. Lazzara, director general de S&P DJI. “Nuestro National Composite subió un 0,9% en junio, y ahora se sitúa sólo un -0,02% por debajo de su máximo histórico de hace exactamente un año. Nuestros Composites de 10 y 20 ciudades ganaron asimismo un 0,9% cada uno en junio de 2023, y se sitúan un -0,5% y un -1,2%, respectivamente, por debajo de sus máximos de junio de 2022”.
La recuperación de los precios de la vivienda es generalizada, según el índice. Los precios subieron en las 20 ciudades en junio, tanto antes como después del ajuste estacional. En los últimos 12 meses, 10 ciudades muestran rentabilidades positivas. Dicho de otro modo, la mitad de las ciudades de la muestra se sitúa ahora en precios máximos históricos, agrega el informe.
Acerca de S&P Dow Jones Indices
S&P Dow Jones Indices es la mayor fuente mundial de conceptos, datos e investigación esenciales basados en índices, y el hogar de indicadores icónicos de los mercados financieros, como el S&P 500® y el Dow Jones Industrial Average®. Se invierten más activos en productos basados en nuestros índices que en productos basados en índices de cualquier otro proveedor del mundo.
S&P Dow Jones Indices es una división de S&P Global (NYSE: SPGI), que proporciona inteligencia esencial para que particulares, empresas y gobiernos tomen decisiones con confianza.
Innovation and adaptation are crucial in finance and business to tackle evolving challenges and seize opportunities. One of the most interesting and effective concepts in this area is the Special Purpose Vehicle (SPV), also known as a special purpose entity. These legal entities, operating under a specific focus, have proven to be an agile asset management tool in various contexts.
Understanding the SPV concept
Special Purpose Vehicles (SPVs) are entities with specific purposes. An SPV is a legal entity with its own assets and liabilities, separate from its parent company. Parent companies legally separate the special purpose entity mainly to isolate financial risk and ensure it can fulfill its obligations even if the parent company goes bankrupt.
An SPV is also a key channel for securitizing asset-backed financial products. In addition to attracting equity and debt investors through securitization, as a separate legal entity, an SPV is also used to raise capital, transfer specific assets that are generally hard to transfer and mitigate concentrated risk.
How do Special Purpose Vehicles work?
The SPV itself acts as an affiliate of a parent corporation. The SPV becomes an indirect source of financing for the original corporation by attracting independent equity investors to help purchase debt obligations. This is most useful for high-credit-risk elements, such as high-risk mortgages.
Not all SPVs are structured the same way. In the United States, SPVs are often limited liability companies (LLCs). Once the LLC purchases the high-risk assets from its parent company, it typically pools the assets into tranches and sells them to meet the specific credit risk preferences of different types of investors.
Companies generally use SPVs for the following purposes:
Asset Securitization: In securitization, an SPV is created to acquire financial assets, such as mortgages, loans, or receivables, from a company or originator. These assets are bundled and issued as asset-backed securities (such as mortgage-backed bonds). The SPV separates the assets from the originating company, which may reduce risk for investors.
Project Financing: SPVs are used in infrastructure or development projects involving multiple parties. The SPV can acquire and operate the project, raising funds from investors and issuing securities to finance it. This limits the risk and liability of the involved parties.
Mergers and Acquisitions: In acquisition or merger transactions, an SPV can be used to isolate the assets or liabilities of the target company, which can benefit risk management and the transaction’s financial structure.
Risk Management: Companies can use SPVs to separate certain risky assets or activities from their balance sheet, helping to mitigate the impact of potential financial issues on the entire organization.
Real Estate and Property Development: SPVs can be used in real estate projects to acquire and develop properties. This can facilitate investment from multiple partners or investors and provide a separate legal structure for the project.
Asset Financing: Companies can use SPVs to finance the purchase of specific assets, such as equipment, planes, ships, or other high-value goods.
Tax Optimization: In some cases, SPVs can be used to leverage specific tax benefits or favorable tax structures in certain jurisdictions.
Special Purpose Vehicles are used to create specific financial structures that help separate risks, facilitate investment, manage assets, and meet specific business objectives. These legal entities offer flexibility and opportunities for investors and companies in various financial and business situations.
At FlexFunds, we take care of all the necessary steps to make customized and innovative SPVs accessible to fund managers. Thanks to these investment vehicles, asset managers and financial advisors can expand the range of products they offer to their clients.
SPV vs. Investment Funds: different approaches for different needs
A Special Purpose Vehicle (SPV) and an investment fund are financial concepts used to structure and manage investments efficiently, but they are employed in different contexts and for different purposes.
Special Purpose Vehicle (SPV):
A special purpose vehicle is a standalone company created to disaggregate and isolate risks in underlying assets and allocate them to investors. These vehicles, also called special purpose entities (SPEs), have their own obligations, assets, and liabilities outside the parent company.
Investment Funds:
Investment funds are collective investment vehicles where investors contribute their money to a common fund managed by financial professionals called fund managers. These funds pool money from various investors and are used to invest in various assets, such as stocks, bonds, real estate, or other financial instruments.
So, a Special Purpose Vehicle (SPV) is used to structure specific transactions and separate risks, while an investment fund is a collective vehicle that allows investors to pool resources to invest in a broader range of assets. Both concepts play an important role in the financial field, but their focus and purpose are different.
There’s no definitive answer as to which instrument is better, as their utility depends on each individual or entity’s specific investment goals and circumstances. Each has its own advantages and disadvantages, and the choice will depend on factors such as the investment purpose, the level of risk the client is willing to take, the investment duration, and personal preferences.
Some Advantages and Disadvantages of SPVs:
Advantages:
Special tax benefits: Some SPV assets are exempt from direct taxation if established in specific geographic locations.
Spread the risk among many investors: Assets held in an SPV are financed with debt and equity investments, spreading the risk of the assets among many investors, and limiting the risk for each investor.
Cost-efficient: It often requires a meager cost depending on where you created the SPV. In addition, little or no government authorization is needed to establish the entity.
Corporations can isolate risks from the parent company: Corporations benefit from isolating certain risks from the parent company. For example, if assets were to experience a substantial loss in value, it would not directly affect the parent company.
Disadvantages:
They can become complex: Some SPVs may have many layers of securitized assets. This complexity can make it challenging to monitor the level of risk involved.
Regulatory differences: Regulatory rules that apply to the parent do not necessarily apply to the assets held in the SPV, which may represent an indirect risk for the company and investors.
Does not entirely avoid reputational risk for the parent company: In cases where the performance of assets within the SPV is worse than expected.
Market-making ability: If the assets in the SPV do not perform well, it will be difficult for investors and the parent company to sell the assets back into the open market.
Some Advantages and Disadvantages of Investment Funds:
Advantages:
Investment funds offer instant diversification by allowing investors to access a diversified asset portfolio managed by professionals.
They offer greater liquidity than some SPVs, as investors can buy or sell fund shares anytime.
Investment funds are more suitable for investors seeking a broader exposure to financial markets without actively managing their investments.
Disadvantages:
Investment funds can have management fees and associated expenses, which can reduce returns for investors.
Investment funds are designed for a wider group of investors and may not offer the same specific structure required in some complex transactions.
Ultimately, choosing between an SPV and an investment fund will depend on your needs and goals. With over a decade of experience, FlexFunds makes setting up an SPV straightforward for its clients, facilitating distribution and capital raising for their investment strategy, achieving this at half the cost and time of any other market alternative.
Photo courtesyLars Jensen, Managing Partner de FDS.
Fund Distribution Services (FDS), specializing in both institutional and retail channels in US Offshore and Latin America has reached an agreement to represent Aegon Asset Management in the US Offshore market.
“Our partnership with Aegon AM allows us to increase the breadth of solutions that we offer our clients. Their history and experience provide additional strength and wisdom within their strategies as solid building blocks within portfolios,” said Lars Jensen, Managing Partner FDS.
Aegon Asset Management is an active global investor with approximately 375 investment professionals managing and advising USD 321 billion as of June 30, 2023, for a global client base of pension plans, public funds, insurance companies, banks, wealth managers, family offices and foundations.
“We are excited to partner with FDS to increase our presence and assets in the US Offshore market. FDS offers an experienced team and strong relationships with platforms and financial advisors in this channel,” added Mark Johnson Managing Director, Aegon Asset Management.
Investors Trust celebrated the grand opening and ribbon cutting ceremony of its new office in Kuala Lumpur.
On Thursday, August 24, from 19:00 to 22:00, Investors Trust hosted a grand opening party that offered a delightful experience for all in attendance. This was a momentous event as it marked the grand opening of their new office in Kuala Lumpur.
This celebration gave guests the unique opportunity to explore the ins and outs of the new office while enjoying a captivating atmosphere.
The Investors Trustmanagement team was also present, sharing interesting conversations and fostering contacts with the guests. The event was attended by more than 140 people, including distinguished guests and representatives of the local media, who came together to celebrate this remarkable milestone in Investors Trust’s trajectory.
This new office is part of the restructuring of Investors Trust’s operations in the region and will serve as the new sales hub in Asia. The relocation reflects the company’s commitment and efforts to deliver top-rated service in the region, especially Malaysia, where it has had a growing presence for over 10 years.
The opening of this office is a strategic decision that represents the company’s preference to concentrate their sales and operations functions in one location where Investors Trust is fully licensed in order to provide optimal service and expand its reach across the region.
“The relocation of our Asia hub continues our longstanding commitment to the region and further expands our presence in Malaysia where ITA Asia Ltd is registered as a licensed Insurer by the Labuan Financial Services Authority,” David Knights, Head of Distribution Asia at Investors Trust.
The office is in the new state-of-the-art Exchange 106 building which is located in the new business district of Tun Razak Exchange. The relocation will provide an attractive and modern working environment for their Asia sales team along with an impressive location for Investors Trust’s business partners from around the world.
Robeco has published the second edition of its comprehensive manual, the Big Book of Sustainable Investing (SI). This publication provides insights into how investors can approach SI, and details Robeco’s sustainable practices. It offers solutions to navigate complex sustainability topics, including the net-zero transition and the UN Sustainable Development Goals (SDGs).
The first Big Book of SI was published five years ago and became one of Robeco’s most downloaded publications, establishing its significance. Over the last few years, the world has experienced major health, geopolitical, and climate-related events. These events have illustrated how quickly risks can materialize and spread with serious impacts on supply chains and economies. “We have witnessed the interconnectedness of environmental and social issues and this has created greater interest, and a more intense focus on sustainability in investments”, the. firm said.
Recent studies reveal that humanity is consuming natural resources 1.75 times faster than the planet’s ecosystems can regenerate. “We cannot change the past, however, there is an opportunity to chart a different course to avoid catastrophic outcomes in the future. The Big Book of SI explores three global challenges – climate change, biodiversity loss, and human rights – to illustrate the need for integrating sustainability into investment decisions. Sustainable Investing contributes to mitigating risks, generating investment returns, and driving positive change through the alignment of portfolios with real-world impact”, Robeco added.
Worldwide, approximately USD 35 trillion is invested sustainably across five major markets. SI growth is expected to continue because it is seen as being financially relevant and with a growing client base and increasing societal expectations, SI investing continues to gather regulatory support.
Mark van der Kroft, Chief Investment Officer Robeco:“Sustainability has been integral to Robeco’s investment philosophy for decades. We firmly believe in safeguarding economic, environmental, and social assets to ensure a healthy planet where people can thrive for generations to come. As SI pioneers and investment engineers, we strive to lead the way in uncovering new opportunities for investors, and promoting a sustainable future for both business and society. This commitment as well as the support to our clients wherever they are on their sustainability journey, is reflected in our second Big Book of SI.”
The 135-page book, filled with research-driven insights, is now available on Robeco’s website.
In July, the U.S. stock market demonstrated remarkable strength, as the S&P 500 continued its upward trajectory, securing its fifth consecutive positive month and achieving its longest streak of monthly gains since August 2021. Additionally, the Dow Jones Industrial Average witnessed its largest two-month gain since November 2022, and within the same month, it tied a record with an impressive 13 straight daily gains. Not to be outdone, the Nasdaq Composite also excelled, marking its fifth consecutive month of growth and best 5-month stretch since September 2020.
Overall, July’s gains served as the cherry on top of what has already been a strong year for equities. The outstanding performance was backed by encouraging economic data and robust earnings reports, further solidifying investors’ confidence.
On July 26, the Federal Reserve announced a 25bps rate hike at the end of its two-day policy meeting, bringing the targeted federal funds rate to 5.25-5.50%. This rate hike brings the benchmark borrowing costs to their highest level in more than 22 years. Fed Chair Jerome Powell stressed that the central bank is seeking proof that inflation is “durably down” and will make their decisions “meeting by meeting based on the totality of incoming data”. Powell emphasized that current economic conditions will likely require monetary policy to be more restrictive for longer until the committee is confident that inflation is coming down sustainably to their 2% target. The next FOMC meeting is September 19-20.
Small cap stocks helped led the rally during the month with the Russell 2000 Value recording its best 2-month stretch since November 2022. We continue to see abundant opportunities in small to mid-cap stocks, given the compelling valuation of the Russell 2000 Value, which currently trades at only 10-12x earnings. This stands in stark contrast to the broader market, which hovers closer to 20x earnings, representing one of the biggest deltas we have ever witnessed.
M&A was bolstered by deals that made significant progress in gaining regulatory approvals. Microsoftdefeated the U.S. Federal Trade Commission’s attempt to block it’s $73 billion acquisition of videogame maker Activision, and the U.K. CMA reversed course and is working with Microsoft to find a deal structure that would satisfy its competitive concerns. The spread to the $95 deal price narrowed considerably and the companies extended their merger agreement and effective increased the deal price by allowing Activision to pay a $0.99 per share pre-closing dividend. VMware and Broadcom secured approval from the European Commission and provisional clearance from the U.K. CMA for their $85 billion deal, the parties still need U.S. and Chinese approvals. L3Harris Technologies secured FTC clearance to acquire rocket engine maker Aerojet Rocketdyne for $58 cash per share ($5 billion) and the deal closed on July 28th. We are heartened to see companies successfully defending the merits of their transactions despite regulatory objections.
July saw a continuation of the risk-on environment and the convertible market moved higher, bringing YTD returns into double digits. The rally was driven by some positive earnings reports along with expectations of a soft landing in the U.S. as inflation moderated. Balanced convertibles led the way in what was another broadly positive month. Fund performance was in line with the global market for the month with some of our equity sensitive holdings leading the way in our portfolio. We still see opportunity in a balanced convertible portfolio. While the market continued a risk-on stance in July, investors are right to be wary of certain returning to previous highs. Convertibles offer a risk adjusted way to participate in this market.
New convertible issuance stalled this month as many companies focused on reporting earnings. We are still on track for a better year of issuance than we saw in 2022. Issuance this year has generally been attractive with higher coupons, lower premiums and more asymmetrical returns than are available in the secondary market. We have continued to see companies buying back convertibles in a transaction that is accretive to earnings and positive for the credit.
Opinion article by Michael Gabelli, Managing Director and President of Gabelli & Partners.
Global Predictions, powering the next generation of economic decision-making, today announced that PortfolioPilot is officially a Registered Investment Advisor regulated by the U.S. Security & Exchange Commission (SEC).
“Securing SEC registration for our AI financial advisor marks a huge milestone for the company and instills a new level of user confidence in our platform,” said Alexander Harmsen, CEO of Global Predictions. “We are committed to empowering self-directed investors to make smarter investment decisions by building hedge fund caliber investment solutions and making them accessible to everyone.”
The company has gone through reviews and implemented a rigorous compliance program with ongoing audits in accordance with the SEC’s stringent compliance guidelines. This compliance, the heightened level of oversight, and fiduciary responsibility strengthen PortfolioPilot’s ability to be a trusted companion for self-directed investors looking for personalized, automated recommendations.
PortfolioPilot distinguishes itself from human financial advisors with its ability to provide genuinely personalized investment advice for self-directed investors. Leveraging AI and the company’s Economic Insight Engine, a proprietary modeling and forecasting system, the platform analyzes the user’s entire net worth to provide automated recommendations, portfolio insights, and an AI assessment to identify critical areas of improvement and highlight economic factors most impacting their portfolio.
PortfolioPilot introduces three new features: Portfolio Overhaul is a one-click, automated, and comprehensive process that reviews and adjusts the user’s existing portfolio based on various factors like risk tolerance level, investment goals, and macroeconomic conditions.
In addition, Fee Optimization provides a clear picture of the annual fees, including expense ratios, transaction costs, and management fees, to help understand the cost of impact on investment returns. In addition, offers cost-saving recommendations, including lower-fee alternatives with similar risk/return and strategies to reduce transaction costs.
Third and finally, AI Equity Search – Assists users in discovering investment opportunities in the market to generate alpha. Based on the user’s search query, the tool will analyze vast amounts of data and generate a shortlist of stocks or ETFs that meet the criteria.
The Securities and Exchange Commission adopted new rules and rule amendments to enhance the regulation of private fund advisers and update the existing compliance rule that applies to all investment advisers. The new rules and amendments are designed to protect private fund investors by increasing transparency, competition, and efficiency in the private funds market, the statement said.
“Private funds and their advisers play an important role in nearly every sector of the capital markets,” said SEC Chair Gary Gensler. “By enhancing advisers’ transparency and integrity, we will help promote greater competition and thereby efficiency. Consistent with our mission and Congressional mandate, we advance today’s rules on behalf of all investors — big or small, institutional or retail, sophisticated or not.”
To enhance transparency, the final rules will require private fund advisers registered with the Commission to provide investors with quarterly statements detailing certain information regarding fund fees, expenses, and performance, the SEC stated.
In addition, the final rules will require a private fund adviser registered with the Commission to obtain and distribute to investors an annual financial statement audit of each private fund it advises and, in connection with an adviser-led secondary transaction, a fairness opinion or valuation opinion.
To better protect investors, the final rules will prohibit all private fund advisers from providing investors with preferential treatment regarding redemptions and information if such treatment would have a material, negative effect on other investors. In all other cases of preferential treatment, the Commission adopted a disclosure-based exception to the proposed prohibition, including a requirement to provide certain specified disclosure regarding preferential terms to all current and prospective investors.
In addition, the final rules will restrict certain other private fund adviser activity that is contrary to the public interest and the protection of investors. Advisers generally will not be prohibited from engaging in certain restricted activities, so long as they provide appropriate specified disclosure and, in some cases, obtain investor consent. The final rules, however, will not permit an adviser to charge or allocate to the private fund certain investigation costs where there is a sanction for a violation of the Investment Advisers Act of 1940 or its rules.
To avoid requiring advisers and investors to renegotiate governing agreements for existing funds, the Commission adopted legacy status provisions applicable to certain of the restricted activities and preferential treatment provisions. Such legacy status will apply to those governing agreements entered into in writing prior to the compliance date and with respect to funds that have commenced operations as of the compliance date.
