10 recommendations that will promote capital formation, expand investor access, improve regulatory efficiency, and reduce waste
Washington, D.C. — MFA recommended a ten-policy roadmap for Acting Chair Mark Uyeda of the Securities and Exchange Commission (SEC) to implement to enable alternative asset managers to drive economic growth and strengthen capital markets in a letter sent today. The recommendations align with President Donald Trump’s Regulatory Freeze and Ensuring Lawful Governance Executive Orders.
“These recommendations will drive economic growth, strengthen public and private capital markets, and support the financial well-being of all Americans. The SEC has a mandate to re-evaluate regulations that impose unjustified costs and burdens on market participants without corresponding benefits,” said Bryan Corbett, MFA President and CEO. “MFA stands ready to work with the SEC on policies that ensure the U.S. capital markets remain the envy of the world.”
Today’s letter recommends rulemakings and guidance for the SEC to implement that will:
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Promote capital formation and enhance the American economy
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Improve the efficiency and the integrity of the financial markets
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Lower costs for investors and market participants
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Streamline federal regulations and eliminate those that are unnecessary and overreaching
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Reduce waste and promote innovation
MFA’s specific recommendations for the SEC include:
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Streamlining Form PF to make it consistent with its intended purpose—monitoring systemic risk. Recent amendments to Form PF significantly expanded data collection beyond the form’s statutory purpose of monitoring systemic risk. The expanded reporting requirements impose excessive compliance costs while yielding little benefit. A more tailored approach will ensure regulators receive relevant data while reducing unnecessary burdens on reporting advisers.
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Enhancing investment opportunities for investors. The SEC has made it harder for investors to access private markets by restricting the ability of registered investment products to hold alternative asset classes. To improve access and strengthen both public and private capital markets, the SEC should:
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Streamline co-investment approvals — The SEC should adopt a more principles-based approach to approving co-investment applications, ensuring retail investors have opportunities to diversify their portfolios.
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Simplify multi-class relief for closed-end funds — The SEC should expand the ability for all closed-end funds to offer multiple classes and simplify the exemptive order process to facilitate broader distribution of these investment products.
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Remove arbitrary limits on closed-end fund investments in private pools — The SEC Staff’s informal 15% cap on such investments lacks legal basis and needlessly restricts fund managers’ ability to implement effective investment strategies.
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Modernize the definition of “knowledgeable employees” — Updating the definition will allow more employee investors to invest in their employer’s private funds, expanding access while maintaining investor protections.
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Updating the Custody Rule to reflect market developments through targeted reforms. The current Custody Rule has not kept pace with financial innovation. The SEC can foster innovation and strengthen investor protections by:
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Withdrawing the 2023 custody proposal.
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Expanding the definition of “privately offered securities” to include other assets covered by the rule where custodial services are unavailable.
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Clarifying the Custody Rule’s application to investments that settle on non-delivery versus payment basis.
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Modernizing the rule to address advisers’ obligations for digital assets and emerging investment products.
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Providing guidance or relief for audit requirements related to stub periods and funds that are winding down.
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Ceasing requiring misleading information under the Advisers Act Marketing Rule. The current SEC staff FAQs require a broad range of fund performance information to be presented to sophisticated, institutional investors in a manner that could be misleading and unhelpful. This blanket requirement limits the ability of alternative asset managers to raise capital that can be invested in the U.S. The SEC can revise its staff FAQs to clarify when managers can only provide gross performance to institutional investors.
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Revising adviser political contribution restrictions. The SEC effectively prohibits investment managers from managing a public fund for two years if they or certain employees have made even a small political contribution to a state or local official connected to the fund. This strict liability penalty artificially shrinks the pool of qualified managers and can limit pension funds’ ability to engage the most qualified manager, potentially harming returns for public employees and retirees. Instead of a blanket ban, the SEC should require managers to maintain compliance policies that monitor and limit campaign contributions in line with fiduciary responsibilities.
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Reforming short position reporting and Regulation SHO. The short position reporting rule adopted by the former Chair is duplicative and burdensome and should be substantially modified. It offers little additional benefit to investors or markets and risks exposing private fund investment and trading strategies, which are critical to private funds’ willingness to engage in fundamental research and contribute to stock price efficiency. Regulation SHO is needlessly complex and inconsistent with the President’s Ensuring Lawful Governance EO. Revising the short position reporting rule to align with existing FINRA reporting regime and updating Regulation SHO to reduce its complexity will reduce burdens on managers and ensure regulators receive useful data while protecting sensitive market information.
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Enforcing Rule 105 of Regulation M as originally intended to enhance capital raising. Using a strict liability standard when enforcing Rule 105 is overly aggressive and discourages investment managers from participating in public offerings. This increases the cost of capital for companies and is counter to the SEC’s mission to facilitate capital formation. Providing relief or guidance that eliminates the enforcement of the strict liability standard for transactions that are not market manipulation will support greater capital formation while protecting markets from abuse.
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Improving Treasury market infrastructure in support of central clearing. MFA supports efforts to enhance Treasury market resilience. However, mandating central clearing without first expanding access to central clearing will increase costs, reduce liquidity, and harm Treasury markets—the foundation of the global financial system. The SEC must ensure that market participants have fair access to central clearing, cross-margining is available, and clearing agencies are operationally prepared before requiring more central clearing. Taking these steps will avoid artificially higher government borrowing costs and enhance Treasury market stability.
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Rescinding or modifying new Schedule 13G reporting to eliminate duplicative filings. The new requirement for investors to file Schedule 13Gs on a quarterly basis is duplicative to Form 13F filings and increases compliance burdens without providing commensurate benefits. This is counter to the President’s Executive Orders on reducing unnecessary regulatory burdens. Rescinding the new requirement to file Schedule13Gs on a quarterly basis will align the rule with the President and reduce burdens on managers. If the SEC wants to continue receiving Schedule 13G data, it can incorporate the Schedule 13G data fields into Form 13F.
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Provide legal certainty for digital asset securities markets. Regulatory uncertainty and novel enforcement actions against digital asset securities market participants hinder innovation. Establishing a regulatory framework that is fair and transparent and allows private funds and broker-dealers to trade digital asset securities will foster greater innovation.
This is MFA’s second letter with policy recommendations to Acting Chair Uyeda since he began leading the Commission earlier this year.
Read the full letter here.
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About the global alternative asset management industry
The global alternative asset management industry — including hedge funds, private credit funds, and hybrid funds — serves thousands of public and private pension funds, charitable endowments, foundations, and other global institutional investors. The industry provides portfolio diversification and risk-adjusted returns to help meet their funding obligations and return targets throughout the economic cycle.
About MFA
Managed Funds Association (MFA), based in Washington, D.C., New York City, Brussels, and London, represents the global alternative asset management industry. MFA’s mission is to advance the ability of alternative asset managers to raise capital, invest it, and generate returns for their beneficiaries. MFA advocates on behalf of its membership and convenes stakeholders to address global regulatory, operational, and business issues. MFA has more than 180 fund manager members, including traditional hedge funds, private credit funds, and hybrid funds, that employ a diverse set of investment strategies. Member firms help pension plans, university endowments, charitable foundations, and other institutional investors diversify their investments, manage risk, and generate attractive returns throughout the economic cycle.
