Note: This content is outdated. On June 5, 2024, the United States Court of Appeals for the Fifth Circuit vacated the SEC’s Private Fund Adviser Rule in its entirety. For information regarding this ruling, please visit Dechert's Newsflash SEC’s Private Fund Adviser Rule Vacated by the Fifth Circuit.
The Securities and Exchange Commission on February 9, 2022, voted three to one to propose a set of new rules and rule amendments under the Investment Advisers Act of 1940 that collectively, if adopted, would represent the most significant changes to the regulation of private funds and their advisers since the Dodd-Frank Act. These proposed rules would:
Quarterly Statements: Require private fund advisers that are registered or required to be registered with the SEC (Private Fund RIAs) to provide investors with quarterly statements that include significant detail as to the fund’s performance and fees and expenses;
Private Fund Audits: Require Private Fund RIAs to obtain an annual audit of each private fund, and cause the private fund’s auditor to notify the SEC upon the occurrence of certain events;
Adviser-Led Secondaries: In connection with adviser-led secondaries, require Private Fund RIAs to obtain a fairness opinion and distribute it to investors, along with a summary of material business relationships between the Private Fund RIA and the opinion provider;
Certain Other Prohibited Activities: Prohibit all advisers to private funds (including Private Fund RIAS, exempt reporting advisers, foreign private advisers, state-registered advisers and certain other investment advisers that are not required to be SEC-registered pursuant to Section 203(b) of the Advisers Act, collectively, Private Fund Advisers) from engaging in certain activities (e.g., related to certain sales practices, conflicts of interest, expenses charged to private funds and compensation arrangements);
Preferential Treatment and Restrictions on Side Letters: Prohibit all Private Fund Advisers from engaging in certain types of differential treatment of investors (i.e., entering into side letters in respect of certain preferential redemption rights or providing preferential information where there is a reasonable expectation such treatment could have “a material, negative effect” on investors), while prohibiting other types of differential treatment absent disclosure to current and prospective investors;
RIA Annual Compliance Reports: Require each investment adviser that is registered or required to be registered under the Advisers Act (RIA) to prepare a written report of its annual compliance program review, which the SEC intends would “focus renewed attention on the importance of the annual compliance review process” and assist examinations staff; and
Recordkeeping Amendments: Make corresponding amendments to Advisers Act Rule 204-2 (Recordkeeping Rule) to require RIAs to make and maintain records related to certain of the newly proposed requirements.
Read the full Newsflash here.
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