New Private Fund Rulemaking

The private fund sector has been a focal point for the SEC, highlighted as one of 2023 Examination Priorities earlier this year. After robust growth in the private fund industry in recent years, the SEC has now approved new rules that will significantly increase the requirements advisers will need to comply with.

With the new changes, private fund advisers will need to comply with the below rules:

• Quarterly Statements

  • Provide detailed quarterly statements to investors, including fee breakdowns, adviser compensation, and specific investment performance reporting.

• Preferential Treatment

  • Notify investors in advance of any preferential treatment given.

  • Prohibited from granting preferential liquidity and/or information rights that are expected to have a negative impact on other investors, unless it is offered to all investors.

• Restricted Activities

  • Prohibited activities unless properly disclosed, and in some cases, majority investor consent:

  • Expensing fees for government investigations;

  • Fees for regulatory compliance costs of the adviser;

  • Non-pro rata fee and expense allocations;

  • Borrowing from a private fund;

  • Reducing adviser clawbacks by the amount of certain taxes.

• Private Fund Audits

  • Must obtain annual audits for each private fund.

• Adviser-Led Secondaries

  • For any secondary transactions initiated by the adviser, they must:

  • Obtain an independent fairness opinion;

  • Distribute material business relationships with the independent opinion provider.