Hedge funds and private equity firms have fired the first salvo in their legal battle with the US Securities and Exchange Commission (SEC) over what they see as a power grab by the commission over the adoption of new rules they say the regulator lacks the authority to impose.

Law firm Gibson, Dunn & Crutcher LLP has filed an opening brief on behalf of the National Association of Private Fund Managers, Alternative Investment Management Association Ltd, American Investment Council, Loan Syndications and Trading Association, Managed Funds Association, and National Venture Capital Association, in the US Court of Appeals for the Fifth Circuit challenging the new rule adopted by the SEC, which requires funds to disclose more about quarterly fees and expenses, as well as keeping some favoured investors from cashing out before others.

The law suit alleges that the SEC didn’t properly weigh the costs and benefits of the regulations before adoption, and emphasises that Congress intended for private funds to be regulated differently than funds available to retail customers and never gave the SEC the authority to intervene in the private funds market. Unlike retail investment products open to all investors, private funds are only available to experienced, sophisticated investors.

Eugene Scalia, a Partner at Gibson, Dunn & Crutcher, wrote in the legal filing: “This case concerns an attempt by the Securities and Exchange Commission to fundamentally alter the way private funds are regulated in America. Private funds are – as the name implies – private, not part of the public securities market.”