The U.S. Securities and Exchange Commission (SEC) proposed new rules promulgated under the U.S. Advisers Act of 1940 (the Advisers Act) on Wednesday, 9 February 2022. Pointing to over US$18 trillion in assets under private fund management and the growth of private funds in recent years, the SEC is introducing five related reforms, which it states are designed to protect private fund investors and to increase transparency, competition, and efficiency in the private fund market.
Broadly speaking, the proposed rules would impose five new requirements on private fund advisers:
a quarterly reporting requirement that includes information about private fund fees and expenses and portfolio performance;
an annual audit requirement for private funds;
for adviser-led secondary transactions, a fairness opinion requirement and enhanced disclosures;
prohibition of certain activities involving conflicts of interest or charging certain fees and expenses; and
full disclosure to all investors of preferential treatment of other investors (such as through side letters).
Some of the new rules, especially as to the prohibition of certain activities, will impose new limits on the practices of private fund managers for which the SEC believes neither disclosure nor consent is sufficient to ameliorate. Other new rules seek to harmonize, clarify, or standardize disclosures that many private fund sponsors are already providing to investors, and that many investors already expect as “market” standards for private fund disclosure.
Authored by Adam Brown, Parik Dasgupta, Henry Kahn, Bryan Ricapito, David Winter, and Kevin Lees.
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