WASHINGTON, DC – Managed Funds Association (MFA) filed a comment letter on Monday with the Commodity Futures Trading Commission (CFTC), urging the agency to abandon its proposal to mandate a disclosure framework for investors in private funds. The letter is in response to a CFTC proposal that would change the investor qualification standards for commodity pool operators (CPOs) and commodity trading advisors (CTAs) who rely on Regulation 4.7 and impose detailed, prescriptive disclosure requirements for CTAs and CPOs.
MFA’s letter notes that increasing the investor qualification thresholds for qualified eligible persons (QEPs) could be an effective way to modernize Regulation 4.7. However, MFA opposes parts of the proposal that require 4.7 CPOs and CTAs to provide their sophisticated investors with overly prescriptive, and potentially misleading, disclosures that conflict with other CFTC regulations.
“We support the CFTC’s objective to modernize the 4.7 regulatory framework for CPOs and CTAs,” said Bryan Corbett, MFA President and CEO. “However, applying a rigid, overly prescriptive disclosure regime on complex private fund offerings designed for sophisticated investors will have negative unintended consequences. CPOs/CTAs and their institutional investors, including pensions, foundations, and endowments, together are best positioned to know what disclosures are needed to make informed decisions. This proposal risks sophisticated investors being limited to only receiving generic and potentially misleading disclosures that will harm their ability to make investment choices.”
CPOs and CTAs who serve QEPs already work with their sophisticated investors to provide ample accurate and relevant information that is tailored to their clients’ needs. These funds employ complex and non-traditional fee arrangements that require customized disclosures to provide investors with information that is informative and actionable. MFA’s letter encourages the CFTC to allow 4.7 CPOs and CPAs to continue to use their discretion to provide investors with tailored, relevant disclosures. From the letter:
“Certain disclosures may be more useful and relevant to QEPs, and other information less so, and the CPO/CTA is best positioned to determine the fund information that QEPs should receive to comply with 4.7… Sophisticated investors often seek out broad multi-strategy structures because they are constructed to efficiently re-allocate capital across markets in response to changing market conditions. Layering the current Performance and Disclosure Rules on top of these complex structures would not provide clearer or more accurate disclosures to investors. Instead, applying the Disclosure and Performance Rules to such fund structures would potentially require any disclosures to attempt to compensate for the flexibility inherent in these products and potentially result in disclosures that are so generic as to be meaningless to investors. Disclosures made under current 4.7 can be tailored to the offering, and address QEP investor preferences and demands, and therefore would be more beneficial to investors and more in line with the Commission’s customer protection goals.”
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, credit funds, and crossover funds, has assets under management of $5.5 trillion (Q3 2023). The industry serves thousands of public and private pension funds, charitable endowments, foundations, sovereign governments, and other global institutional investors by providing portfolio diversification and risk-adjusted returns to help meet their funding obligations and return targets.
About Managed Funds Association
Managed Funds Association (MFA), based in Washington, DC, New York, 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, 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 170 member firms, including traditional hedge funds, credit funds, and crossover funds, that collectively manage nearly $3 trillion across a diverse group of investment strategies. Member firms help pension plans, university endowments, charitable foundations, and other institutional investors to diversify their investments, manage risk, and generate attractive returns over time.
