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Lanon Wee

SEC Proposes Regulation to Reduce Risk Taking by Fund Managers

to join some of the most powerful investors around the world. Be part of the 13th Annual CNBC Delivering Alpha Investor Summit, taking place in New York City on September 28, 2023. Register now to network with some of the world's most powerful investors. The Securities and Exchange Commission is looking to introduce a sweeping change that would make fund managers more accountable for their actions, lowering the bar for indemnification from "gross negligence" to "ordinary negligence." Marc Elovitz, partner and chair of the regulatory practice at Schulte Roth & Zabel, argues that this shift will have a major influence on the relationship between fund managers and investors, as it would make it easier for limited partners to sue general partners for simple mistakes. Meanwhile, the Institutional Limited Partners Association has raised its own concerns about the potential adverse effects, although it believes that the ordinary negligence standard should be applied to breach of contract. Gary Gensler, chairman of the SEC, has previously spoken out on the proposed rule, which also involves fee and expense reporting and preferential treatment to certain limited partners. It has been speculated that a final vote on the reforms will take place in 2021. Critics of the proposal think that it would lead to a decrease in the risk tolerance of private funds, who would be more cautious when making investment decisions. This would be like going to the amusement park and only riding the merry-go-round - for many, not worth the price of admission.

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