The U.S. Securities and Exchange Commission (SEC) adopted final private fund rules under the U.S. Investment Advisers Act of 1940 (the Advisers Act) on August 23, 2023. Although the final rules are significantly less onerous than proposed in February 2022, they establish new requirements that will impact all private fund advisers, including both registered investment advisers (RIAs) and, in some cases, exempt reporting advisers (ERAs). In particular, while the SEC had proposed to ban outright certain categories of prohibited activities, the final rules adopt a disclosure (and in some cases investor consent) approach and also “grandfather” most existing funds from the prohibited activities provisions.
The new rules generally take effect 18 months after publication in the Federal Register, with certain of the prohibited activities rules subject to an effective date of 12 months after publication for fund groups with private fund assets under management of $1.5 billion or more.
Taken together, the new rules represent one of the most far-reaching reforms of private fund regulation since adoption of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Noting that the assets under management by private fund advisers rose from $9.8 trillion in 2012 to $26.6 trillion in 2022, the SEC justified its rulemaking in part on the increasing exposure of many retirement plans to private funds, as well as rising retail investor interest in private funds.
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