SEC Commissioner Says Private Credit Redemption Limits Work

SEC Commissioner Mark Uyeda concluded that recent redemption limits imposed by some private credit funds worked as intended and were not evidence of product failure. He acknowledged that many investors appeared confused by the caps.

At an SEC Investor Advisory Committee Mr. Uyeda said the limits aligned the funds' redemption terms with their less liquid holdings, prevented fire sales, and protected remaining shareholders after certain private credit funds faced elevated redemption requests. He said investors' surprise at the caps suggested a mismatch between their expectations and the funds' prospectus disclosures. To the extent that these mismatches represent inadequate disclosures or improper sales practices, he said any violations should be covered by existing SEC and FINRA rules.

Mr. Uyeda also asked the Committee to consider the question of concentration of voting power in investment companies. He noted that the four largest index fund providers together control more than 20 percent of the votes of S&P 500 companies. He warned that the more those managers influence board composition, executive pay, or other proxy matters without a mandate from fund investors, the more their role resembles active control - raising questions about fiduciary duties, transparency, Schedule 13D/13G reporting, and the regulation of proxy advisory firms.

Further, Mr. Uyeda told the Committee that the SEC would weigh recommendations on modernizing the fund proxy system for open-end funds and ETFs and on quarterly and semi-annual corporate reporting.