Financial Industry and Regulation

Non-Traded Alts Fundraising Totaled $73.1 Billion in 2023: The DI Wire reports that non-traded alternative investment fundraising totaled nearly $73.1 billion for 2023, led by non-traded business development companies at $21.2 billion, private placements at $20.2 billion, interval funds at $19.2 billion and non-traded real estate investment trusts at $9.8 billion, according to the latest research provided by investment bank Robert A. Stanger & Co. Inc. Stanger’s survey of top sponsors tracks fundraising of all alternative investments offered via the retail pipeline, including publicly registered non-traded REITs, non-traded business development companies, interval funds, non-traded preferred stock of traded REITs, Delaware statutory trusts, opportunity zone funds and other private placement offerings. Fundraising for non-traded REITs, business development companies and interval funds contracted to an aggregate of $50.7 billion in 2023 versus $80.2 billion in 2022.

DOL Official Says Changes Coming in Proposed Fiduciary Rule: Pensions & Investments reports that changes will be made in the Department of Labor's investment-advice proposal based on public feedback, according to a key department official. In a public comment period that closed Jan. 2, the department received about 425 substantive comment letters (including a comment letter from ADISA) and almost 20,000 petitions on its proposed Retirement Security Rule. "I can tell you that there will be changes to the rule and the exemption text based on what we've heard from folks," said Timothy D. Hauser, deputy assistant secretary for program operations of the Labor Department's Employee Benefits Security Administration, last week. "In some cases, I think there'll be changes because it was demonstrated to us that some of the language is susceptible to interpretations that weren't as intended, in other cases it's more substantive," Hauser added. Opponents to the proposal, like those in the advice business, have called on the department to withdraw the proposal for a host of reasons, including that the proposed fiduciary definition is too broad, the proposal is a rehash of a 2016 rule that was vacated in court, and that there are already sufficient regulations covering the marketplace, like the Securities and Exchange Commission's Regulation Best Interest.

High Stakes SEC Court Fight Looming: The Wall Street Journal reports that regulators and the private-equity industry are gearing up for a trial that could determine the government’s ability to set rules for buyout funds, with some business interests hoping the case could loosen regulators’ hold on Wall Street. On Feb. 5, a three-judge panel for the Fifth Circuit Court of Appeals is set to hear oral arguments in a challenge private-fund lobbyists mounted against tough new SEC rules. The provisions, finalized last August after months of contentious discussion, require private-equity firms to tell investors much more about the fees they charge, and prohibit some activities the regulator considers unfair and conflicted. The SEC proposal is arguably the toughest measure the government has taken to check private equity since the emergence of modern buyout firms more than 40 years ago. The court’s decision in this case could have ripples beyond the $26 trillion private-funds industry, attorneys say. Several other rules proposed by SEC Chair Gary Gensler base their authority on the same statute at the heart of this case.

SEC Urged to Stop “Regulation By Enforcement:” InvestmentNews reports that the Financial Services Institute released a plan Tuesday that it says will enable the SEC to avoid penalizing financial firms and advisors for violating federal securities laws when the alleged perpetrators don’t know they’ve done anything illegal. For many years, FSI and other industry trade associations have accused the SEC of so-called regulation by enforcement. That occurs, they say, when the SEC takes an enforcement action without giving fair notice that the behavior it’s targeting is out of compliance with the agency’s rules. In a white paper released Tuesday, FSI outlined policies and procedures the SEC should adopt to prevent regulation by enforcement. Before any “first of its kind enforcement action,” the SEC should consider whether there has been “reasonable and fair notice to both the subject of the enforcement action and to other potentially affected parties” through rules, guidance, public statements and reports, the paper states. The white paper also recommends that the SEC obtain feedback from potentially affected firms and their representatives, such as trade groups, regarding the effect of the policy spurring the enforcement action. The agency also should consider alternatives to enforcement, such as rulemaking or risk alerts.

Policy and Legislation

House Passes Bipartisan Tax-Cut Bill: The Wall Street Journal reports that the House passed a bipartisan tax-cut bill by a 357-70 vote late Wednesday that would deliver billions of dollars to companies and low-income families. The bill now faces tough sledding in the Senate. Republicans there have been lukewarm about the deal negotiated by House Ways and Means Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR). The $78 billion bill would let businesses deduct domestic research costs immediately instead of over five years and expand deductions for equipment purchases and interest costs. The bill includes 100% bonus depreciation, as well as increasing the amount of investment that a small business can immediately write off to $1.29 million from the $1 million cap enacted in 2017. It also would expand the child tax credit, giving more money to low-income families that don’t pay income taxes. The cost of the bill is offset by shutting down the employee-retention tax credit. Although the tax-filing season has already started, the Internal Revenue Service could send families additional refunds for tax year 2023 within weeks if the bill becomes law.