SEC Proposes New Rules for Private Fund Advisers

The SEC recently proposed new rules that would impose additional practice and disclosure requirements on private fund advisers which, if adopted in their current form, could collectively have severe consequences for such advisers. Among other things, the proposed rules would require SEC-registered advisers to:

  • provide quarterly reporting to fund investors including detailed and standardized disclosures about fund expenses and performance; and
  • obtain and deliver audited financial statements for each advised private fund annually and upon liquidation.

Importantly, the proposed rules would prohibit all private fund advisers (including exempt reporting advisers) from:

  • entering into side letter arrangements granting preferential redemption rights or certain portfolio information rights if such rights would have a material adverse effect on fund investors;
  • requiring reimbursement from investors for the adviser’s breach of its fiduciary duties including situations involving simple negligence;
  •  Charging private funds for certain fees and expenses;
  • deducting taxes owed from any clawback they must provide to investors; and
  • Borrowing funds or securities from a fund or receiving an extension of credit from a fund.

Very importantly, the proposed rules do not have a grandfathering provision, and, therefore, if the rules are adopted as proposed, advisers would need to assess whether existing private fund documents must be amended, which can be challenging given that the adviser and fund investors negotiated fund terms based on circumstances prior to the existence of the new requirements.

Read more here.

SEC Considers Changes to Accredited Investor Definition

Those looking to launch hedge, private equity, venture, or real estate funds in the near future should take notice that the SEC intends to consider, in April 2022, changes to the definition of the “accredited investor” definition found in Regulation D under the Securities Act of 1933, which allows many private fund sponsors to offer their securities without having to register them with the SEC when they limit sales of securities to accredited investors.


While the SEC has not indicated whether it intends to restrict the definition to reduce the pool of investors that qualify as “accredited investors,” it should be noted that several rule proposals recently published by the SEC are designed to enhance investor protection and promote increased disclosure when it comes to investments in private funds.


Changing the accredited investor definition will invariably impact private fund capital raising, and therefore existing and prospective fund sponsors should take notice.

Read more here.

Marketing Rule Compliance Checklist for investment advisers

To facilitate compliance with amendments to Rule 206(4)-1 (Marketing Rule) under the Investment Advisers Act of 1940, we developed a Compliance Checklist.  The date for compliance  is November 4, 2022 – by which time registered investment advisers must adopt and implement new policies and procedures, and build the operational and supervisory systems necessary for compliance.

  • The Marketing Rule modernizes the regulatory regime governing investment adviser marketing practices and revises standards that investment advisers have been operating under for decades.
  • Compliance with the Marketing Rule will require significant changes to investment advisers’ marketing practices, including use of testimonials, endorsements, or third party ratings and investment advisers’ use of performance information.
  • The Compliance Checklist is intended to serve as a helpful guide for legal and compliance personnel responsible for developing compliant policies, procedures, and systems that account for these sweeping changes.

You can access it here.

To Do Checklists for the Month of March 2022

Investment Advisors

Hedge/Private Fund Advisors


Registered Commodity Pool Operators

Mutual Funds

  • Form N-PORT
  • Form N-MFP
  • Form N-CEN

Read more here.

SEC Frowns on Private Equity Fee Offset Calculations, Hedge Clauses, and Backtested Performance: Lessons Learned and Worth Reading for February 2022

Lessons Learned:

Worth Reading, Watching, and Hearing

Read more here.