PA Schools pension official sees some risk in new SEC rules

The Securities and Exchange Commission’s new rules regarding fee, expense and performance disclosures could inadvertently result in more work for LPs, said Pennsylvania Public School Employees’ Retirement System director James Del Gaudio.

Instituted in August, the SEC’s new rules have been described as the most sweeping regulations addressing private funds since the passage of the Dodd-Frank Act. Industry participants have now had several weeks to digest the new rules and are assessing their potential impacts.

Del Gaudio discussed the SEC’s new rules at the system’s October 19 investment committee meeting. Buyouts watched a broadcast of the meeting.

“The rules overall are a step forward for the industry but there are some unique intricacies to look at regarding the transparencies we are used to,” Del Gaudio said.

According to Del Gaudio, new rules outlining how GPs must disclose fees, exposures and performance rank as the biggest concern.

The SEC is requiring GPs to report total fund level fees and other information, which could impact the more tailored reporting some investors have received from their GPs. The risk is that GPs will cease providing LP-specific reports in the future, according to Del Gaudio.

Currently, PA Schools receives these disclosures based on its pro-rata share of an investment via an ILPA-produced template, Del Gaudio said.

“If we get this information at the fund level, we may have to take operational steps to calculate pro-rata costs on our own,” Del Gaudio said.

According to Neal Prunier, ILPA’s senior director of industry affairs, the new SEC disclosure rule should serve as a “floor” in terms of standards.

“LPs should continue to receive the types of disclosures they’ve negotiated for with existing funds. And, they should plan to continue to negotiate to receive anything beyond fund-level fee and expense reporting for future funds, which is data that GPs should be permitted to provide under the new SEC rule,” Prunier said.

Del Gaudio also said new rules outlining side letters may slow down negotiations as the industry adjusts to the SEC’s new policies.

Overall, Del Gaudio was supportive of the SEC’s new rules.

“A lot of these rules are good. I don’t see them backfiring. I only see the rules giving us the transparency we require quicker,” Del Gaudio said.