RE fee breaks and preferential economics. Just as consumers are able to appreciate wholesale discounts for bulk purchasers or long-term customers, I suspect certain fee breaks offered in past funds will be manageable. That said, if placement agents, IR staff or other agents suggested no one else had better economics, there may be a fundamental trust breakdown between an adivser and client. What remains a bit of an unknown is the preferential terms offered to "strategic partners" and "friends and family" classes. Full freight paying investors may be miffed if the criteria is broad and attenuated for this preferred status--e.g., everyone any managing director’s college fraternity/sorority.
Strategic umbrella agreements with key investors that provide cross netting among funds or other benefits may require transparency.
For differential liquidity, the SEC seems to take a rather inflexible view, and that may need to be managed (at least for open end funds) as different fee/liquidity exchange classes available to all fund investors.
Schulte partner Peter Greene recently spoke to Michael Thrasher from Institutional Investor for his article, "Who Benefits When the SEC Spills Everyone’s Side-Letter Secrets?"
Discussing a provision in the SEC's new Private Fund Advisers Rules, Peter explained that the requirement to offer the same terms to all investors could result in less attractive terms overall, which could in turn cause institutions to invest less in funds.
According to Peter, having smaller investors will impact the stability and flexibility of some private funds, while offering better terms to all investors will increase costs, create a bigger barrier to entry for new funds, and further limit investors’ choices.
“The rule has potential to harm large investors, smaller investors, and managers,” he stated.
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