The new rules adopted by the Securities and Exchange yesterday requiring hedge funds, private equity funds and venture capital funds register and make periodic disclosures to the agency fail at most basic level: They simply lack a cognizable purpose.
The SEC will collect a vast amount of information about venture capital funds, hedge funds, and private equity funds. The initial registration process will be incredibly costly, as will ongoing disclosure requirements. Funds will have to appoint compliance officers, and may be subject to SEC inspections. Even small firms, supposedly exempt from registration, will have to lawyer up to make sure they are actually exempt. Each filing creates the potential for legal jeopardy for the fund's managers.
Get something wrong on your filing and you could find yourself hauled into an SEC administrative court, where you'll have far fewer rights than you would have as a non-registered firm.
And what will the SEC do with all of this information? No one knows.
The SEC itself says its budget hasn't kept pace with its new authority. But even if it did have the manpower to monitor all the newly registered funds, it's not clear what the value of having this information would be. It's an authority in search of a mission.
In short, the SEC has created a costly new set of rules devoid of any known benefits.
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