SEC Provides New Marketing Rule Guidance
In this edition of CCG Dispatch, we delve into the recent SEC Marketing Rule guidance and its implications for private fund advisers. Let's explore the key highlights together:
What Happened
The SEC has provided new guidance for the Marketing Rule addressing how private fund advisers should calculate gross and net performance in marketing material. While the rule doesn’t prescribe a methodology for calculating performance, the SEC has addressed specific situations when financing facilities are used.
Key Takeaways
Private fund advisers wishing to present Gross and Net IRR in their marketing materials must ensure that performance is calculated using the same time period and methodology.
If an adviser chooses to exclude the impact of fund borrowing or subscription facilities from Gross IRR, it must also exclude it when calculating Net IRR.
If an adviser includes the Gross IRR calculated from before capital commitments are called, it should also show the Net IRR calculated from the same time period.
The SEC adds that an adviser will violate the Marketing Rule if it only shows Net IRR with the impact of fund-level subscription facilities without including either:
Net IRR without the impact of these facilities, or;
Disclosures describing the impact of such facilities on the net performance.
CCG’s Guidance
Investment Advisers should review all marketing materials and private placement memorandums to ensure compliance with the SECs’ latest guidance.
Advisers should ensure that the methodology and time periods used for calculating gross and net performance remain consistent.
Transparency is crucial to help investors make informed decisions, so both figures should be presented side by side.
In an ever-changing regulatory landscape, preparation is key. The SEC’s focus on the Marketing Rule serves as a reminder of the volume, velocity, and complexity of the new regulation promulgation.