Press Release: Private Fund Adviser Rule vacated, AIMA welcomes court ruling

The Alternative Investment Management Association (AIMA) welcomes the US Court of Appeals for the Fifth Circuit decision to vacate the Securities and Exchange Commission's (US SEC) Private Fund Adviser Rule on the grounds that it is unlawful and exceeds the regulator's authority to enact.

Commenting on the ruling, AIMA CEO Jack Inglis said:

“We are very pleased by the Court's ruling, which will spare the private funds industry and investors a lot of unnecessary costs and disruption, as a result of the US SEC’s unlawful action. Today's ruling rewards our decision to file suit, which was taken to protect the interests of our members against regulatory overreach and improper rulemaking by the US SEC that would have had severe and adverse impacts on a wide variety of market participants."

The court’s summary of the ruling is here.

In September 2023, Gibson, Dunn & Crutcher LLP filed suit on behalf of AIMA and other industry trade bodies in the US Court of Appeals for the Fifth Circuit challenging the rule adopted by the US SEC regulating private fund advisers.

The consortium of trade bodies argued that the rule should be vacated based on their arguments that, among other things:

• The new rule exceeds the US SEC's statutory authority by attempting to regulate the terms of the relationship between private funds (which are specifically exempt from such regulation) and their investors;
• The US SEC failed to provide the public a meaningful opportunity to comment on the final rule, which was not a logical outgrowth of the proposed rule;
• The rule is arbitrary, capricious, and otherwise unlawful. It claims to fix an industry problem, but the US SEC cites no evidence of the problem; and
• The US SEC did not perform an adequate cost-benefit analysis, neglecting its statutory duty to consider whether the rule "will promote efficiency, competition, and capital formation".

Today, the panel of judges presiding over the case has ruled in favour of AIMA and other industry trade bodies, agreeing in principle with the arguments outlined above.