What are the New SEC Private Fund Advisor Rules?
On August 24, the Securities and Exchange Commission (SEC) adopted reforms it had been considering to improve oversight and regulation of private fund advisors. The new rules and amendments are aimed at enhancing transparency, investor protection, and competition within the private fund industry.
Requirements pertaining to private fund advisers registered with the Commission:
Provide investors with quarterly statements detailing certain information regarding fund fees, expenses, and performance;
Obtain and distribute to investors an annual financial statement audit of each private fund it advises; and
In connection with an adviser-led secondary transaction, obtain and distribute to investors a fairness opinion or valuation opinion.
Requirements pertaining to all private fund advisors:
Prohibition from providing investors with preferential treatment regarding redemptions and information if such treatment would have a material, negative effect on other investors. (In all other cases of preferential treatment, a disclosure-based exception is available, including a requirement to provide certain specified disclosure regarding preferential terms to all current and prospective investors.)
Prohibition from charging or allocating to the private fund certain investigation costs where there is a sanction for a violation of the Investment Advisers Act of 1940 or its rules.
In addition, the final rules will restrict certain other private fund adviser activity, unless appropriate specified disclosures are made and, in some cases, investor consent obtained.