A Shake Up of the USA Private Funds Market Looms

Deregulation of private funds is gaining momentum in the USA following policy shifts by the Trump 2.0 Administration and a succession of court rulings going in the industry’s favor. Despite these tailwinds, private funds are still facing some regulatory hurdles ahead, as David Mitchell from JTC explains.

Trump 2.0 – a friendlier regime?

It looks like private funds are poised to do rather well under the Trump Administration.

Prior to taking Office, President Trump promised a bonfire of regulations, and many experts anticipate this could be extended to private funds, a number of whom have struggled under the weight of post-2008 GFC rules. As and when this happens, however, remains to be seen.

Some of the new Administration’s Executive Orders could spell good news for private funds too, assuming they are actually implemented. For instance, President Trump issued an Executive Order calling for the creation of a US Sovereign Wealth Fund. Such an institution would have enormous firepower and could be an additional source of capital for private funds.

Elsewhere, there are reports circulating that the private equity industry is planning to lobby the Administration to make it easier for tax deferred defined contribution (DC) plans, such as 401ks, to invest in the asset class.¹ Should this happen, it could unlock a huge amount of capital for the private funds industry.

The Courts come to the rescue

The US Courts are doing their part to help ease the compliance burden facing private funds.

In June 2024, the US Court of Appeals for the Fifth Circuit ruled against the Securities and Exchange Commission’s (SEC) proposed amendments to the Private Fund Advisor (PFA) rules, which among other things would have forced managers to publish information each quarter about their fees, expenses, performance and remuneration, and banned them from offering certain investors preferential treatment over others.²

Had the rules taken effect, compliance would have been extremely expensive for private fund managers. According to SEC estimates, compliance with the updated PFA requirements would have set the industry back by $5.4 billion,³ and this comes at a time when firms are already grappling with rising costs elsewhere.

In a separate ruling in Texas, a Judge struck down proposals that would have required 16 hedge funds to register as US Treasury Dealers with the SEC and self-regulatory organisations, i.e. FINRA, whilst also forcing them to comply with Federal securities laws. The SEC’s original plans would have only caught out a small minority of hedge funds, but the implications would have been significant.

But, private funds are facing some regulations…

Although things have gone well lately, private funds are still bracing themselves for a regulatory onslaught.

First adopted in 2023, Rule 13f-2 will require hedge funds⁴ to submit an updated Form SHO to the SEC detailing any short positions they may have above a certain threshold every month, a move which proponents argue will help improve market-wide transparency.

While the first filing was supposed to happen in February 2025, the SEC helpfully announced the deadline would be pushed back to February 2026, in order to give managers extra time to test their reporting systems. This will give firms a bit of breathing space with compliance.

Other rules are going to have an impact on private funds.

Volatility in the $27 trillion US Treasury market prompted the SEC to introduce new centralized clearing requirements for Treasury Cash and Repo transactions. Together with banks and brokers, the rules will also affect asset managers and hedge funds.

According to the SEC, this move will support market resiliency and enhance investor protection across the US Treasury market. However, the added margin requirements and operational changes required from firms will lead to higher costs.

The rules were supposed to go live in December 2025 and June 2026 respectively, but they have been delayed by one year to give market participants additional time to prepare.

The next four years could lead to some positive changes for private funds and their capital raising efforts, but there is still a lot of regulation looming on the horizon, which firms will need to prepare for. Engaging with a high-caliber service provider during this time will be critical if managers are to maximize their chances of success during this period.

To discuss this article, or to learn about JTC, get in touch with David directly.

[1] Financial Times – January 6, 2025 – Private equity to lobby Donald Trump for access to savers retirement funds

[2] Simmons & Simmons – June 5, 2024 – US court vacates the SEC’s Private Fund Advisor rules

[3] Private Funds CFO – June 5, 2024 – Appeals court scuttles SEC’s private fund rules

[4] Regulatory Compliance Watch – November 27, 2024 – Judge strikes down dealer rules