Private Funds Exhale Over SEC Rule Despite Big Compliance Costs

Hedge funds and private equity firms are breathing a sigh of relief, welcoming concessions the Securities and Exchange Commission made when green-lighting a rule that imposes new restrictions and requires more fee disclosures.

The SEC adopted, by a 3-2 vote Wednesday, regulations aimed at increasing transparency in the multi-trillion-dollar private fund industry. But the agency eased—and in some cases abandoned—some of the most contentious parts of its initial proposal.

The SEC dropped a plan that would’ve exposed more fund managers to legal liability for mistakes, while softening its approach on side letters that give some investors special treatment. The ...