North American Managers Opt for the European Passport as a Way to Reach Clients in the Old Continent

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North American managers plan to create European funds and use the passport to attract investments in Europe ahead of reverse solicitation and National Private Placement Regimes (NPPR), according to a new study by Ocorian. The study surveyed executives in venture capital, private debt, real estate, private equity, and infrastructure fund management in the US and Canada, responsible for $1.591 trillion in assets under management.

The latest survey reveals that 41% chose the passport for future fundraising in Europe, compared to 25% who selected NPPR and the same percentage who opted for reverse solicitation as their preferred methods for fundraising in the study of passports, reverse solicitation, and NPPR.

The study shows that 61% will use placement agents to raise capital in Europe over the next 18 months, nearly half (49%) will also use direct sales teams, and 47% will rely on third-party distributors. Around 28% will use private banks. Approximately 63% have used reverse solicitation in the past to raise funds in Europe, while 40% have turned to the passport and 36% to NPPR, with one in eight (12%) using all three methods.

When asked what makes the passport more attractive, 56% chose market perception and the ability to reach more investors in more countries among their top three reasons, while 44% rated efficiency as a key attribute. The same question about NPPR found that 70% cited cost-effectiveness and 64% flexibility as the two main reasons for using it, while 69% said the amount of capital they have raised from European investors through reverse solicitation has increased over the past two years.

The research found that 82% of North American fund managers are likely to increase pre-marketing activity in Europe over the next two years, with 73% saying it is much or more attractive to pre-market in Europe due to the lower initial investment before fully establishing. However, the study found varying levels of understanding regarding the pre-marketing changes implemented in Europe in June 2021, which included specific changes to the cross-border distribution of collective investment funds under the AIFMD and UCITS Directives in the EU. Only 38% said they understood them very well, while 58% said they understood the changes fairly well.

“There is a strong appetite among North American fund managers to raise capital in Europe and a growing debate about the best methods to do so. At Ocorian, we have supported several managers seeking to test European appetite for their strategy and proposed product through pre-marketing. It is a cost-effective way to decide whether to launch an EU-authorized AIF and use its passport to conduct distribution activities across the region. We only see demand for this service increasing as North American managers conclude that the passport is the most attractive distribution method for the future,” notes Paul Spendiff, Head of Business Development and Fund Services at Ocorian, in light of these findings.

State Street Names Dagmar Kamber Borens Head of Global Markets for Continental Europe

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State Street Bank International (SSBI) has appointed Dagmar Kamber Borens as Head of Global Markets for Continental Europe. Borens will report to Anthony Bisegna, Head of Global Markets at State Street, and Andreas Przewloka, CEO of State Street Bank International.

According to the company, Borens will also join the Global Markets Executive Management Group and will retain her current responsibilities as Country Head for Switzerland, in addition to continuing as a member of the SSBI Executive Management Board. “Borens’ professional experience and progress in developing our business in Switzerland make her the ideal candidate to take on the role of driving our growth in the broader region,” stated Andreas Przewloka, CEO of State Street Bank International.

Anthony Bisegna, Head of Global Markets at State Street, added, “State Street’s markets business continues to grow, so it is critical to have the right team structure in place to support the changing needs of our clients in Europe and globally.”

In her role, Borens will be responsible for delivering the bank’s global market strategy for Continental Europe, as well as collaborating with stakeholders in Global Markets and Investment Services to enhance client engagement. “European institutions and investors are facing challenging times and are looking more than ever for partnerships that help them achieve their goals. Deepening our client relationships while continuing to drive an innovative approach to developing client solutions is essential to our ability to help European clients continue to meet their growth ambitions in a volatile environment,” concluded Borens.

The Performance of U.S. Commercial Offices Will Continue to Decline

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The performance of commercial real estate (CRE) office loans will further weaken as market pressures increase, according to the latest June 2024 edition of Fitch Ratings’ U.S. CMBS Office Dashboard.

“We maintain a ‘deteriorating’ outlook for the U.S. office sector until the end of 2044. Contributing factors include higher and sustained interest rates, slower economic growth in the U.S., a tighter credit environment, and a secular decline in office demand. We expect these conditions to increase refinancing difficulties, resulting in higher loan delinquencies and more loan transfers to special servicing,” states Fitch.

According to the rating agency, the recovery of the office sector will be slower and more prolonged during this cycle than after the global financial crisis, leading to permanent declines in property values, weaker performance, and higher credit losses.

“We have revised our forecast for U.S. CMBS office delinquencies upward to 8.4% and 11% for 2024 and 2025, respectively, from the 8.1% and 9.9% projected at the beginning of 2024,” note Fitch analysts.

Office buildings have the lowest refinancing percentage of any major property type. Urban office performance significantly underperformed expectations with a refinancing rate of 5% year-to-date in May 2024.

“We expect lower refinanceability for office loans maturing through the end of ’24, with a refinancing rate of 16% to 21% according to Fitch’s updated scenarios.”

Office loans account for 22% of the total U.S. CMBS portfolio rated by Fitch. The agency notes that most office loans maturing in the next two years will continue to have positive cash flow. However, Class B/C office properties, generally securitized in multi-borrower conduit transactions, are at greater risk of performance deterioration. Higher-quality single-asset/single-borrower (SASB) office loans have more desirable attributes and higher DSCRs and occupancies.

New Mountain Capital Hires John Camperlengo

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New Mountain Capital, a New York-based investment firm, has appointed John Camperlengo as Vice President.

Camperlengo is a seasoned professional with extensive experience in investor relations and alternative investments, having spent several years in the financial services industry. His appointment was shared by the man himself on his LinkedIn profile.

His professional experience includes managing alternative investments in private real estate, private credit, private equity, and growth equity.

Before joining New Mountain Capital, John Camperlengo also served as Vice President at Blackstone, where he worked for seven years.

New Mountain Capital currently manages over $45 billion in assets and has shown significant dynamism this year, including the previously announced acquisition of Broadcast Music, Inc. (BMI), the world’s largest performing rights organization, in November 2023.

Fundraising in the Private Equity Market Is Expected to Stagnate at $1.1 Trillion in 2024

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Bain & Company has published the latest edition of its Private Equity Midyear Report, analyzing the global evolution of the private equity market so far this year. Up until May 15, 2024, the sector has raised $422 billion, compared to $438 billion during the same period last year.

The report reveals that private equity fundraising could reach $1.1 trillion this year, 15% less than the previous year. Buyout funds are leading, with $199 billion raised, and are expected to reach $531 billion by the end of the year, a 6% increase compared to 2023. Although the activity volume seems to have stabilized, the study notes it remains at historically low levels, especially considering the $3.9 trillion in available dry powder, of which $1.1 trillion is committed capital pending investment from buyout funds.

Bain & Company explains that, as of May 15 this year, the number of buyout deals had decreased by 4% annually compared to the previous year, suggesting that 2024 could see similar figures to 2023. However, the total value of these deals is on track to end the year at $521 billion, 18% more compared to $442 billion in 2023, largely due to the increase in the average transaction size (from $758 million to $916 million).

At the same time, divestitures of buyout fund holdings have seen stable annualized growth. While the total value of these exits is expected to reach $361 billion in 2024, representing a 17% increase from 2023, this year could be the second worst since 2016. Moreover, the stagnation of divestitures is leaving private equity funds with “aging” assets and limiting capital returns to investors, who are pressing for increased distributions on their deployed capital.

According to Cira Cuberes, a partner at Bain & Company, the growing investor interest in a small group of private equity funds is changing the landscape. “For buyouts, the 10 largest funds have raised around 64% of the total capital to date. The largest, EQT X, valued at $24 billion, captured 12% of the total. This leaves most buyout funds vying for the remaining 36% of available capital, with at least one in five of these funds falling short of their fundraising targets,” she notes.

Álvaro Pires, also a partner at Bain & Company, believes the outlook for private equity investment has improved, and the total deal value in 2024 is likely to approach pre-pandemic boom years. However, he cautions that it may take at least 12 months for an increase in divestitures to also shift the fundraising trend. “Even if deal activity picks up this year, we might have to wait until 2026 to see a real improvement. In such a competitive market, companies must adapt to new macroeconomic challenges and fully understand investor expectations to develop comprehensive plans in their portfolios that meet their demands and add value,” Pires adds.

Nuveen Appoints William Huffman as CEO, Replacing José Minaya

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Nuveen has announced the appointment of William Huffman as the firm’s Chief Executive Officer. Huffman, who will chair Nuveen’s executive leadership team and be a member of TIAA’s executive committee, replaces José Minaya.

With over 30 years of experience in asset management, Huffman recently served as President of Nuveen Asset Management and Head of Equities and Fixed Income. In this role, he led a team responsible for managing a global investment business with over $1 trillion in assets across equities, fixed income, municipal bonds, multi-asset, private equity, and financing for the Commercial Property Assessed Clean Energy (C-PACE) program, providing the firm’s clients with diverse capabilities and solutions.

“Bill’s unwavering dedication to the best interests of clients and the development of the firm’s strategy has had a transformative impact on Nuveen’s business and culture, driving growth and innovation over the past 16 years. I am delighted to welcome Bill to this position and am confident that Nuveen will thrive under his leadership. We are grateful for all of José’s contributions and wish him much success in the future,” said Thasunda Brown Duckett, CEO of TIAA.

As part of the firm’s executive leadership team since joining the group in 2008, Huffman has been at the forefront of Nuveen’s evolution and played a key role in increasing the firm’s assets under management to $1.2 trillion from the $800 billion it had in 2014 when TIAA acquired Nuveen. Among Huffman’s expanding responsibilities have been leading multiple major acquisitions and overseeing the investment teams responsible for managing over $1 trillion in both listed and unlisted markets.

William Huffman, now CEO of Nuveen, stated: “I am proud to take on the responsibility of leading Nuveen’s exceptional and dedicated team. We will continue to strengthen our position as a market leader in fixed income, offering clients enhanced capabilities in listed and alternative markets, and investing in our wealth and institutional businesses in key segments such as insurance and pensions. An increased international presence will enable Nuveen to serve its clients in new ways, building on the solid foundation of a diverse and stable business.”

According to the firm, Nuveen’s global operating model is designed to provide specialized investment capabilities across all asset classes, meeting the needs of clients worldwide and throughout various market cycles.

20 years of experience

William Huffman is the executive sponsor of Nuveen’s Philanthropic Steering Committee and the Culture and Inclusion Council, which is responsible for developing an inclusive culture for all associates. He led the acquisition of FAF Advisors (the former asset management division of U.S. Bank), Greenworks Lending, and Arcmont Asset Management, as well as the integration of numerous subsidiaries, including Nuveen Asset Management, TIAA Public Investments, TIAA Private Investments, Symphony Asset Management, NWQ Investment Management, Santa Barbara Asset Management, and Churchill Asset Management.

Before joining Nuveen, Huffman was CEO of Northern Trust Global Investments Limited. He resides in the Chicago area and serves his community as vice-chairman of the board of directors of the Boys and Girls Clubs of Chicago, and is also a member of the Rush System Trustee and the Cancer Advisory Council.

Brian Ruder and Dipan Patel, New Co-managing Partners and Co-CEOs of Permira

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Permira, a global private equity firm, has announced that Brian Ruder and Dipan Patel will become Co-Managing Partners and Co-CEOs, while Kurt Björklund will transition to Executive Chairman, starting September 1, 2024.

According to the company, Brian Ruder joined Permira in 2008 and currently serves on Permira’s Executive Committee, chairs the Permira Growth Opportunities Investment Committee, and co-chairs the Buyout Funds Investment Committee. “Since joining, he has been instrumental in building the firm’s Technology sector team, which he co-led until 2023, and has been involved in several of the firm’s most notable transactions, including Ancestry, Genesys, Informatica, LegalZoom, Lytx, Magento, McAfee, Relativity, Renaissance Learning, TeamViewer, and Zendesk,” they noted.

Dipan Patel, on the other hand, is Co-Head of Permira’s Consumer sector team and a member of the Buyout Funds Investment Committee and Permira’s Executive Committee. He began his career at Permira in 2009 in the Technology team before joining the Consumer team in 2018 and has been key in extending Permira’s long track record of consumer investments into the digital age. Dipan has worked on several transactions, including Adevinta, AllTrails, Ancestry, Axiom, Boats Group, Informatica, LegalZoom, The Knot Worldwide, Renaissance Learning, and Yogiyo.

Following this announcement, Kurt Björklund, Executive Chairman of the firm, stated, “Dipan and Brian have been strong leaders and vital contributors to Permira’s strategy, culture, and investment track record for over 15 years. They embody Permira’s values of collaboration, creativity, and integrity and have collectively worked on 22 investments across Permira’s sectors, representing approximately €17.5 billion of capital, including LP co-investments. Appointing Brian and Dipan as Co-Managing Partners marks the next chapter in our long history of successful leadership evolution and reflects our commitment to careful firm stewardship. I am excited to remain actively involved as Executive Chairman and to work closely with them as we continue to grow the firm and enhance performance for the benefit of our investors and our team.”

On their appointment, Brian Ruder and Dipan Patel, Co-Managing Partners and Co-CEOs of Permira, commented, “It is a privilege to be the next leaders of Permira, a firm that has been shaped by the thoughtful guidance of Kurt and previous Managing Partners. Permira’s strategy is to generate enduring investment returns by supporting and building exceptional businesses. Alongside Kurt, our partners, and colleagues in our global offices, we are excited to write the next chapter of our firm.”

Regarding Kurt Björklund, in 2008, he became Co-Managing Partner alongside Tom Lister, who retired in 2022, before becoming the sole Managing Partner in 2021. Over the past 16 years, the firm has expanded its investment focus and range of products in private equity and credit, nearly tripling the size of the team and raising eight private equity funds and over 30 credit vehicles in total, representing approximately €60 billion of capital.

Blacktoro Strengthens Its Advisory Business in the US With Efficient Portfolios, Says Its President

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BlackToro has made headway in the United States with an RIA model that advises clients solely to enhance their portfolios without conflicts of interest, Gabriel Ruiz, president and founder of BlackToro, told Funds Society.

The industry executive commented that the trend will increasingly be to charge for independent advisory services and focus on research and technology to improve client returns without conflicts of interest.

“If I don’t need to make transactions to earn commissions, I have more independence to do my job and improve my clients’ returns,” Ruiz explained.

According to the founder of BlackToro, “the greatest market need is to see efficient portfolios” for the benefit of the client.

Ruiz, who was the founder of Delta Asset Management and also worked for Santander, Scotiabank, and Raymond James, added that the advisory system is a scheme that favors transparency and loyalty to the client.

However, the BlackToro partner clarified that this is not a value judgment against broker-dealers and acknowledged that there are end clients with extensive financial knowledge who are interested in managing their portfolios without independent external advice and only need a broker-dealer to transact and offer specific investment products.

A Multi-Platform Service

BlackToro has several custodians as a possibility of more freedom for the client.

“Being multi-platform allows us to be broader in our offering, but you have to be generating value all the time,” Ruiz clarified.

The partners of BlackToro and their background in asset and wealth management have “a strong focus on investment selection analysis teams.”

According to Ruiz, the study for portfolio creation starts from a macroeconomic perspective and “from macroeconomics, we drill down thanks to our strong team of macroeconomists.”

BT VALO

Just a few days ago, BT Valo was formally registered as an RIA Investment Advisor.

BT VALO is a new company born from a strategic alliance between VALO | Banco de Valores S.A. and BlackToro, aiming to provide investment advice linking the financial markets of the US and Argentina.

The agreement with Banco de Valores is very positive for BlackToro because it has many decades in the Argentine industry and is a service bank, which makes it “very special and professional,” Ruiz added.

In addition, “it is a leader in what it does, debt issuance, trusts, and is a leading custodian of investment funds.”

“The partnership between BlackToro and VALO, which takes on the name BT VALO, is a Miami-based joint venture, with a 50/50 split between the two firms, where VALO handles commercial relationships and BlackToro manages the portfolios,” he concluded.

The World Is Experiencing Its Lowest Levels of Peace Since World War II

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Investors’ current concerns about geopolitics and political instability are entirely justified. According to the latest edition of the Global Peace Index (GPI), a study measuring relative peace worldwide by the international think tank Institute for Economics & Peace (IEP), the current state of peace is the most fragile since World War II.

The report shows that without joint and coordinated efforts, there is a risk of escalating existing conflicts and provoking new ones. Its main conclusion is that up to 97 countries have seen a decline in their levels of peace compared to last year’s edition, more than any other year since the creation of the Global Peace Index in 2008. Conflicts in Gaza and Ukraine were the main drivers of the decline in global peace, with conflict deaths reaching 162,000 in 2023.

Currently, 92 countries are involved in conflicts beyond their borders, more than at any other time since the creation of the GPI. Additionally, the global economic impact of violence increased to 17.5 trillion euros in 2023, representing 13.5% of the world’s GDP.

Two other key findings from the report are that exposure to conflicts poses a significant risk to government and business supply chains and that the degree of militarization recorded the highest annual increase since the creation of the GPI, with 108 countries becoming increasingly militarized.

The report details that 95 million people are refugees or internally displaced due to violent conflicts, and 16 countries now host more than half a million refugees. On the flip side, Spain is now the twenty-third most peaceful country in the world, having climbed seven places since last year, while North America is the region that has experienced the greatest deterioration in its peace levels due to increased violent crime and fear of violence. In contrast, the first military scoring system, driven by IEP, suggests that the U.S. military capacity is three times larger than that of China.

A Less Peaceful World

According to the GPI 2024, the world is less peaceful for the twelfth time in the last 16 years and worsens its levels of peace for the fifth consecutive year. In this regard, 97 countries in the world have deteriorated their records. The report concludes that many of the conditions that precede major conflicts are higher than they have been since the end of World War II. Currently, according to the report, there are 56 active conflicts in the world, the highest number since World War II. Moreover, they increasingly have a greater international component, with up to 92 countries involved in conflicts outside their borders, the highest number since the creation of the Global Peace Index.

The growing number of minor conflicts increases the likelihood of more major conflicts occurring in the future. For example, in 2019, Ethiopia, Ukraine, and Gaza were identified as minor conflicts. Currently, according to the report, there are 16 countries where more than 5% of the population has been forced to flee.

The Victims

Last year, according to IEP, 162,000 conflict-related deaths were recorded, the second-highest number in the last 30 years. The conflicts in Ukraine, with 83,000 deaths, and Gaza, with estimates of at least 33,000 until April 2024, caused nearly three-quarters of the deaths. In the first four months of 2024, conflict-related deaths worldwide totaled 47,000. If this rate continues for the rest of the year, it would be the highest number of conflict deaths since the Rwandan genocide in 1994.

Additionally, by mid-2023, more than half of all refugees under UNHCR’s mandate came from only three countries: Syria, Afghanistan, and Ukraine. In this regard, Syria is the state with the highest magnitude of displacement, where the impact and aftermath of the Syrian civil war have caused 56.7% of the entire population to be internally displaced or refugees.

“During the last decade, peace levels have declined in nine out of ten years. We are witnessing a record number of conflicts, increased militarization, and greater international strategic competition. Conflicts negatively affect the global economy, and business risks stemming from conflicts have never been higher, exacerbating current global economic vulnerabilities. It is imperative that governments and businesses worldwide step up their efforts to resolve numerous minor conflicts before they become major crises. Eighty years have passed since the end of World War II, and current crises urgently require world leaders to commit to investing in resolving these conflicts,” explains Steve Killelea, founder and executive chairman of the IEP.

It is noteworthy that Europe remains the most peaceful region in the world in the GPI 2024, hosting seven of the top ten ranked countries. However, it recorded a 0.24% deterioration in peace compared to last year. Of the 36 countries in the region, 13 improved and 23 worsened their level of peace. The main cause of this decline was the deterioration in militarization and the conflict between Russia and Ukraine. Consequently, European countries have re-evaluated their military spending and overall combat readiness.

The Chronic Conflict Between Ukraine and Russia

Regional conflicts like the war between Russia and Ukraine, according to IEP, illustrate the devastating human cost and complexity of modern warfare. The latest figures suggest that last year there were more than 83,000 deaths from internal conflicts in Ukraine alone, meaning that more than half of all deaths in 2023 occurred in this single conflict.

According to the report, the war in Ukraine has caused nearly 6.5 million refugees by March 2024. In fact, the migration of young Ukrainians is significantly impacting the country’s ability to recruit new soldiers. It is estimated that nearly 30% of the population are refugees or internally displaced, a figure that rises to nearly 60% for young people of both sexes.

As a result of the war, Ukraine’s militarization continues to increase, with deteriorations recorded in the indicators of armed forces personnel, military spending (% of GDP), and nuclear weapons. Without a foreseeable immediate end to the war, Ukraine has become the fifth least peaceful country in the world, only surpassed by Yemen, Sudan, South Sudan, and Afghanistan.

On the other hand, Russia’s overall peace level deteriorated by 0.28% last year. It now ranks 157th in the GPI, making it the seventh least peaceful country in the world in 2024. According to the report, this conflict is an example of a “forever war,” where prolonged violence becomes seemingly endless, without clear resolutions, exacerbated by external military support, asymmetric warfare, and geopolitical rivalries. The conflict between Russia and Ukraine has led many European countries to re-evaluate their military spending and overall combat readiness, with 30 of the 39 European countries recording a deterioration in this area last year.

 Tensions in the Middle East

The Gaza conflict has not only had a significant impact on the region but also on global peace. The conflict between Israel and Palestine escalated dramatically in 2023 following the terrorist attacks on October 7 and the subsequent military invasion of Gaza. Since then, more than 35,000 deaths and a severe humanitarian crisis have been recorded. The report details that Palestine experienced the fourth largest deterioration in peace in the GPI 2024, falling nine places to 145th. Israel, for its part, dropped to an all-time low of 155th place, the largest deterioration in peace in the GPI 2024. Ecuador, Gabon, and Haiti were the other countries with the greatest deterioration in peace.

The conflict has also had a significant impact on the media. According to this year’s edition of the Global Peace Index, media articles in Israeli media with negative sentiment towards Palestinians increased by 85% in early 2024, compared to 30% in 1999. Beyond the Israel-Palestine conflict, the Middle East region is in a delicate balance of forces. Syria, Iran, Lebanon, and Yemen are also in active conflicts, with increasing economic consequences and a high risk of open war. A further escalation of the conflict would have severe consequences for the global economy, potentially triggering a global recession. According to the report, Syria’s economy contracted by more than 85% following the start of the civil war in 2011, and Ukraine’s economy contracted by 29% in the year following the start of the conflict in 2022.

The Global Economic Impact of Violence

The report explains that the global economic impact of violence in 2023 was 17.5 trillion euros or 2,188 euros per person. This represents an increase of more than 145 billion euros compared to last year. This increase is largely driven by a 20% rise in GDP losses due to conflicts. Spending on peacebuilding and maintenance amounted to 45.602 billion euros, representing less than 0.6% of total military spending.

Violence and the fear of violence directly influence the economy, generating costs in the form of material damage, physical injuries, or psychological trauma. Fear of violence also alters economic behavior, primarily reducing the propensity to invest and consume. Spending on prevention, containment, and treatment of the consequences of violence diverts public and private resources from more productive activities towards protective measures.

Additionally, violence generates economic losses in the form of productivity deficits, foregone income, and spending distortions. The total economic impact of violence has three components representing the different ways violence affects economic activity: direct costs, indirect costs, and a multiplier effect.

Global Peace Levels

The report explains that Iceland remains the most peaceful country, a position it has held since 2008, followed by Ireland, Austria, New Zealand, and Singapore, which is in the top five for the first time. Yemen has replaced Afghanistan as the least peaceful country in the world. It is followed by Sudan, South Sudan, Afghanistan, and Ukraine.

The Middle East and North Africa (MENA) region remains the least peaceful. This

area is home to the two least peaceful countries in the world, Sudan and Yemen. Despite the tensions in this region, the United Arab Emirates recorded the greatest improvement in peace in the Middle East and MENA, climbing 31 places to 53rd position in 2024. Although most peace indicators have deteriorated over the past 18 years, there has been an improvement in the homicide rate, which decreased in 112 countries, while the perception of crime improved in 96 countries.

The US Alternative Assets Industry Wins a Battle Against the SEC

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On the path to increased investment in private assets, several American associations have just won a significant battle against the powerful regulator thanks to a court ruling that deems the SEC incompetent to introduce its Private Fund Adviser Rule (PFAR).

The successful legal challenge was brought by a group of industry bodies: the National Association of Private Fund Managers; the Alternative Investment Management Association; the American Investment Council (AIC); the Loan Syndications and Trading Association; the Managed Funds Association; and the National Venture Capital Association.

The PFAR, introduced in August 2023, aimed to promote transparency, competition, and efficiency “on behalf of all investors, big or small, institutional or retail, sophisticated or not.”

But the Fifth Circuit Court of Appeals concluded that the SEC lacked the legal authority to introduce these rules, which required, among other things, that SEC-registered managers provide investors with certain disclosures, quarterly statements on compensation, fees, expenses, and performance of fund advisers, and annual audits of each fund’s financial statements, as well as opinions or valuations on secondary transactions.

Additionally, the regulation prohibited preferential treatment or information to any investor regarding redemptions.

According to a report by Preqin, this judicial outcome will not only have consequences in the United States but will also impact the global alternative assets industry.

Reactions to a Decision That Could Be a Double-Edged Sword

The AIC called the PFAR “illegal, unjustified, and ultimately harmful to investors.” Drew Maloney, the association’s president and CEO, described the court ruling as “a victory for thousands of businesses across the United States that need capital to grow and millions of workers who rely on private equity and credit to strengthen their retirements.”

The Wall Street Journal celebrated the defeat of SEC Chairman Gary Gensler.

On the other hand, the President and CEO of the Investment Company Institute (ICI), Eric J. Pan, stated that “the Fifth Circuit’s decision overturning the SEC’s private fund adviser rule is a clear acknowledgment by the court of the serious issues that ICI has raised about regulation by hypothesis. We echo the court’s concerns that the SEC acted outside its mandate. As we await action on dozens of similarly overreaching SEC proposals, we hope the SEC will take the time to study this decision and pay more attention to the serious concerns expressed by the public and market participants on issues such as liquidity risk management, safeguarding, and outsourcing.”

However, Jennifer Choi, Executive Director of the Institutional Limited Partners Association, warned that without mandatory minimum standards for critical information on performance, fees, and expenses, LPs will have to negotiate terms “that should be common sense.” She was disappointed that the court did not recognize the SEC’s long-standing authority to protect private market investors.

Heather Heys, Vice President, and Michael Gallagher, Senior Associate, of Preqin’s Legal Insights team, suggest that LPs will now rely more than ever on their own legal and financial advice and understanding of standard market fees and terms in limited partnership agreements. And this, for many investors, could mean a steep learning curve.