Bloomberg Law and Law360 Quote Brian Daly on the Impact of the Fifth Circuit’s PFAR Decision

For its article “SEC’s Power to Regulate Hedge Funds Dealt Blow by Appeals Court,” Bloomberg Law quoted Akin investment management & private equity partner Brian Daly. The article considers the impacts of the Fifth Circuit’s recent decision to strike down the Securities and Exchanges Commission’s (SEC) restrictions on hedge funds and private equity firms.

Brian highlights that this decision will cause difficulties for the SEC to, “substantively regulate the relationship between sophisticated investors and fund managers.”

The SEC’s Private Funds Advisor Rule (PFAR) was released in August 2023 and would have required private funds to disclose more about their fees and expenses, restricting advisers’ sales practices, conflicts of interest, and compensation.

“Congress created the private funds category to allow bespoke arrangements, to allow more customization, more negotiation between equals,” added Brian.

Additionally, Brian is quoted in Law360’s article saying the Fifth Circuit’s decision to vacate the U.S. SEC’s regulations, “could not have been more positive for the industry.”

Brian noted that the court could have decided on a softer approach to give the SEC time to rewrite the rule calling it, "a pure, unabashed, full frontal assault on the very jurisdictional basis of the rulemaking."

Brian is also quoted by National Law Journal in their article discussing how the SEC will move forward after the Fifth Circuit’s ruling, saying the decision on whether to appeal may depend on its legal-staff resources.

“I imagine that the appellate lawyers at the SEC are already pretty tapped because … by historical measures, there’s a large amount of litigation going on,” Brian said.

On the agency’s Division of Examination Brian added, “I can tell you with absolute certainty that five years ago, today, five years from now, the exam teams are keenly focused on expenses, fees and conflicts.”

“In terms of the safety of the investing public, this will not, has not, and should not slow down the work of the Division of Examinations.”

For Private Funds CFO’s article, “The death of the private funds rule – and the aftermath (part 4),” Brian comments on SEC Chairman Gary Gensler’s aggression saying he may leave the agency “weaker than when he found it.”

He continues, “This was a very big, public loss for them. But it is an inevitable result given chairman Gensler’s approach, which departs significantly from the SEC’s traditional rulemaking posture. This approach stems from a need to push the boundaries, manifested along the lines of, ‘If we’re not losing at least some of the time, we’re not trying hard enough.’”

“In this new world, the SEC is an active instigator of ‘push the envelope’ cases, and therefore is expected to lose at least some of the time,” Brian adds. “My fear is that a string of losses weakens the agency overall and causes industry to start looking at the commission as just another opponent, and one that can be defeated.”