NEW SEC PRIVATE FUNDS RULES: DATA, REPORTING AND COMPLIANCE CHALLENGES
In late 2023, the Securities and Exchange Commission (SEC) adopted new rules (Private Fund Rules) under the Investment Advisers Act of 1940, which will have a significant impact on fund sponsors and the private funds they advise.
These rules are intended to increase investors’ visibility into certain adviser practices and to protect investors by promoting increased transparency, competition and efficiency in the private funds market. As adopted, the rules present a material increase in the regulatory compliance and reporting obligations of private fund advisers.
The rules apply to all private fund advisers such as private equity and buyout funds, hedge funds, fund of funds and venture capital funds, as well as to registered investment advisers (RIAs) that advise private funds.
The new Private Fund Rules are aimed at increasing transparency to and protection of investors in three primary areas. First, private funds and their sponsors are required to provide additional disclosures to all investors regarding preferential treatment of certain investors. Second, these rules restrict certain practices such as borrowings and allocation of expenses and fees by private funds and their sponsors in the absence of additional disclosure to and consent from investors. Third, SEC-registered advisers must provide investors with not only quarterly performance, fee and expense statements but also with annual audited financial statements for the private funds they advise.
For advisers whose principal office is outside the US, none of the Private Fund Rules apply – other than the written annual review requirement for SEC-registered advisers. This exemption applies whether the non-US adviser is an exempt reporting adviser, foreign private adviser or SEC-registered adviser. However, the exemption would not apply with respect to any US-domiciled funds that the adviser manages.
Apr-Jun 2024 Issue
GRMA, Inc.