Thread by @doctorow

Like a lot of leftists, I've been profoundly disappointed and demoralized by the Biden administration's unwillingness or incapacity to play hardball and get the "Biden Agenda" through Congress. 1/

But there is a ray of hope: some of Biden's agency picks are *astoundingly* great and doing *amazing* work.

Take @GaryGensler, Biden's @SECGov chair. Gensler is doing what no SEC chair before has dared to do. 2/

He's taking on the rotten, corrupt practices of the private equity sector, who rip off giant pension funds and trash the real economy, while making the ghouls who run them *ridiculously* rich. 3/

Whenever I write about the private equity playbook, in which investor cash is used to buy up and debt-load productive companies, leaving behind drained, ruined husks, people always ask how this can possibly be profitable?

pluralistic.net/2020/04/04/a-m… 4/

Part of the story is the unbelievable favorable regulatory regime for PE. Not only does its leadership get to pocket trillions in profits that any other earner in America would have to pay tax on, they also get to operate with near-total opacity. 5/

The lack of any transparency requirement allows PE managers to skim billions for themselves, their firms and their cronies, often at the expense of large institutional investors. 6/

Who are those institutional investors? Well, a lot of the money in PE comes from public sector unions - a remarkable truth that's all the more remarkable when you consider that the first priority of any business colonized by PE investment is to eliminate its unions. 7/

Enter Gensler, who has just proposed sweeping transparency requirements ("Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews") for PE targeted at revealing and heading off the scams that make the industry possible.

sec.gov/rules/proposed… 8/

That doc may seem intimidating, but that's because so much of the grift in PE takes place behind the "shield of boringness" - the deliberate introduction of otherwise pointless, eye-glazing complexity that serves only to bore and confuse. 9/

But thankfully, we have @YvesSmith, who provides an invaluable breakdown of the rule and its context in today's Naked Capitalism:

nakedcapitalism.com/2022/02/sec-se… 10/

The new rule requires PE companies to provide "information any businessman investing his own money would demand."

* An explanation of how the money was spent;

* Whether the manager hired any cronies or relatives and on what terms;

* A detailed performance accounting. 11/

As Smith writes, it's going to be hard for PE to come up with rationales for resisting such commonsense measures and even attempting it could be disastrous. 12/

"[The] industry runs a risk if they try to make too much of a stink that the great unwashed public may realize that lots of government pension dollars are going into investments with dreadful accounting and lots of grifting and self dealing." 13/

Smith gives the rule a good chance of passing. Investors have been demanding these disclosures from PE for years without progress. The PE industry's self-regulatory system is a joke, wherein "at least half of the private equity fees and costs were not disclosed." 14/

The specifics of the rule are so commonsense that they're eye-openers. A rule banning charging fees for services not rendered implies that fees are *routinely charged* for services not rendered! 15/

The rule will also standardize PE reporting so that funds can be directly compared with one another. Not only will this help investors figure out where to put their money - it will also help detect cheating. 16/

Like a lot of leftists, I've been profoundly disappointed and demoralized by the Biden administration's unwillingness or incapacity to play hardball and get the "Biden Agenda" through Congress. 17/

But there is a ray of hope: some of Biden's agency picks are *astoundingly* great and doing *amazing* work.

Take @GaryGensler, Biden's @SECGov chair. 18/

Gensler is doing what no SEC chair before has dared to do: taking on the rotten, corrupt practices of the private equity sector, who rip off giant pension funds and trash the real economy, while making the ghouls who run them *ridiculously* rich. 19/

Whenever I write about the private equity playbook, in which investor cash is used to buy up and debt-load productive companies, leaving behind drained, ruined husks, people always ask how this can possibly be profitable?

pluralistic.net/2020/04/04/a-m… 20/

Part of the story is the unbelievable favorable regulatory regime for PE. Not only does its leadership get to pocket trillions in profits that any other earner in America would have to pay tax on, they also get to operate with near-total opacity. 21/

The lack of any transparency requirement allows PE managers to skim billions for themselves, their firms and their cronies, often at the expense of large institutional investors.

Who are those institutional investors? 22/

Well, a lot of the money in PE comes from public sector unions - a remarkable truth that's all the more remarkable when you consider that the first priority of any business colonized by PE investment is to eliminate its unions. 23/

Enter Chairman Gensler, who has just proposed sweeping new transparency requirements ("Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews") for PE management targeted at revealing and heading off the scams that make the industry possible. 24/

sec.gov/rules/proposed…

That doc may seem intimidating, but that's because so much of the grift in PE takes place behind the "shield of boringness" - the deliberate introduction of otherwise pointless, eye-glazing complexity that serves only to bore and confuse. 25/

But thankfully, we have @YvesSmith, who provides an invaluable breakdown of the rule and its context in today's Naked Capitalism:

nakedcapitalism.com/2022/02/sec-se… 26/

Fundamentally, the new rule requires PE companies to provide "information that any private businessman investing his own money would demand."

* An explanation of how the money was spent;

* Whether the manager hired any cronies or relatives and on what terms; 27/

* A detailed performance accounting. 28/

As Smith writes, it's going to be hard for PE to come up with rationales for resisting such commonsense measures and even attempting it could be disastrous: "[The] industry runs a risk if they try to make too much of a stink that the great unwashed public may realize that… 29/

…lots of government pension dollars are going into investments with dreadful accounting and lots of grifting and self dealing."

Smith gives the rule a good chance of passing. Investors have been demanding these disclosures from PE for years without progress. 30/

The PE industry's self-regulatory system is a joke, wherein "at least half of the private equity fees and costs were not disclosed."

The specifics of the rule are so commonsense that they're eye-openers. 31/

A rule banning charging fees for services not rendered implies that fees are *routinely charged* for services not rendered!

The rule will also standardize PE reporting so that funds can be directly compared with one another. 32/

Not only will this help investors figure out where to put their money - it will also help detect cheating.

It's not all about transparency. The rule also prohibits a bunch of activity that, again, is an *absolutely wild* list of total scams that are commonplace today. 33/

"The proposals also would prohibit all private fund advisers from engaging in several activities, including seeking reimbursement, indemnification, exculpation, or limitation of liability for certain activity; 34/

"...charging certain fees and expenses to a private fund or its portfolio investments such as fees for unperformed services and fees associated with an examination or investigation of the adviser; 35/

"...reducing the amount of an adviser clawback by the amount of certain taxes; charging fees or expenses related to a portfolio investment on a non-pro rata basis; and borrowing or receiving an extension of credit from a private fund client." 36/

Smith reminds us that we can all write in support of this rule. Simply email [e-mail] with "File Number S7-03-22" in the subject line. 37/

Smith says that you can write, "The technical details are beyond my ken, but it’s clear the SEC’s initial private equity oversight didn’t go far enough, so it’s gratifying to see the agency take this important matter up again with such an detailed and apparently very… 38/

…carefully thought out set of rule changes."

It's not all about transparency. The rule also prohibits a bunch of activity that, again, is an *absolutely wild* list of total scams that are commonplace today. 39/

"The proposals also would prohibit all private fund advisers from engaging in several activities, including seeking reimbursement, indemnification, exculpation, or limitation of liability for certain activity; charging certain fees and expenses to a private fund or its… 40/

…portfolio investments, such as fees for unperformed services and fees associated with an examination or investigation of the adviser; reducing the amount of an adviser clawback by the amount of certain taxes; charging fees or expenses related to a portfolio investment on… 41/

…a non-pro rata basis; and borrowing or receiving an extension of credit from a private fund client."

Smith reminds us that we can all write in support of this rule. Simply email [e-mail] with "File Number S7-03-22" in the subject line. 42/

Smith says we can say, "The technical details are beyond me, but it’s clear the SEC’s initial private equity oversight didn’t go far enough... 43/

"It’s gratifying to see the agency take this important matter up again with such an detailed and apparently very carefully thought out set of rule changes." 44/

If you'd like an unrolled version of this thread to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

pluralistic.net/2022/02/10/mon…