SEC Enhances Regulations of Private Fund Advisers
Over the years, private funds have become a more common investment vehicle in the financial investment market. An increased number of investors choose to get involved in the private funds space and, as the number of investors grows, the SEC makes a point to monitor and develop new regulations and standards for the adjusting landscape. With this, the SEC recently announced that it has adopted new rules and rule amendments to enhance the regulation of private fund advisers. The SEC stated that these new rules and associated amendments were designed to protect private fund investors through increased transparency, competition, and overall efficiency of the private funds market.
The SEC also made a change to an existing rule that applies toall SEC-registered advisers .
SEC's New Private Fund Rules and Amendments
Coupled with its press release, the SEC also released a helpful fact sheet that lays out some of the basic changes and adjustments to private funds under the Investment Advisers Act of 1940.
These new rules require all SEC-registered private fund advisers to:
- Provide investors with quarterly statements detailing information regarding private fund performance, fees, and expenses;
- Obtain an annual audit for each private fund; and
- Obtain a fairness opinion or valuation opinion in connection with an adviser-led secondary transaction.
These new rules now require all private fund advisers to:
- Prohibit engaging in certain activities and practices that are contrary to the public interest and the protection of investors unless they provide certain disclosures to investors, and in some cases, receive investor consent; and
- Prohibit providing certain types of preferential treatment that have a material negative effect on other investors and prohibit other types of preferential treatment unless disclosed to current and prospective investors.
The SEC did adopt legacy status provisions applicable to certain restricted activities and preferential treatment provisions to avoid requiring renegotiation for existing governing agreements.
Written Documentation of Annual Compliance Review
Along with these new private fund rules, the amendments will now require all SEC-registered advisers, even those that don't advise private funds, to document in writing the annual review of their compliance policies and procedures.
When Do These New Rules Take Effect?
In a recent release commenting on the new rules, the Investment Adviser Association issued a press release to assist in the breakdown of these compliance dates. As with their other rules and amendments, the SEC has announced staggered compliance dates for private fund advisers for each of these specific rules and amendments. These compliance dates are based on private fund AUM.
- Private Fund Audit Rule andQuarterly Statement Rule :18 Monthsafter publication in theFederal Register
- Adviser-Led Secondaries Rule, Preferential Treatment Rule, and the Restricted Activities Rule : The SEC has adopted staggered compliance dates and transition periods based on private fund AUM.
- >$1.5 billion : A12-month transition period
- <$1.5 billion : An18-month transition period
Written Documentation of Annual Compliance Review: 60 days after publication in theFederal Register
FinTech Law Can Help with Private Fund Compliance
If your firm advises private funds and is unsure of how these new rules and amendments affect you, don't hesitate to reach out to the FinTech Law team or help. We can assist you in navigating the details and nuances of private fund compliance and execution.