On February 9, 2022, the SEC voted to propose new rules and amendments under the Investment Advisers Act of 1940 (“Advisers Act”) to enhance the regulation of private fund advisors. These rules and changes would significantly increase transparency with regard to these investment advisors.
Proposed Rules
The proposed rules would require the following:
- Require SEC-registered private fund advisors to provide investors with quarterly statements detailing certain information regarding fund fees, expenses, and performance.
- Prohibit private fund investment advisors (including those registered and not registered with the SEC) from providing certain types of preferential treatment to investors in their funds and all other preferential treatment unless it is disclosed to current and prospective investors.
- Create new requirements for fund advisers related to fund audits, books and records, and advisor-led secondary transactions.
- Prohibit all private fund advisors from engaging in several activities, including seeking reimbursement, indemnification, exculpation, or limitation of liability for certain activity; charging certain fees and expenses to a private fund or its portfolio investments, such as fees for unperformed services and fees associated with an examination or investigation of the advispr; reducing the amount of an advisor clawback by the amount of certain taxes; charging fees or expenses related to a portfolio investment on a non-pro rata basis; and borrowing or receiving an extension of credit from a private fund client.
Next Steps
The SEC will seek comments regarding these proposed rules. Once comments have been reviewed, a final rule and adopting release may be issued.
A copy of the proposed rule can be found here.
For more information about the proposed rules discussed above, please contact NCA Compliance.
Hayley Nelson is the President and Principal Consultant of NCA Compliance, Inc., a compliance consulting firm providing a wide range of customized compliance solutions for investment advisors. Ms. Nelson previously worked for the Securities and Exchange Commission and a large investment manager in New York.
