Yesterday the U.S. Securities and Exchange Commission (Commission), in a 3-2 vote, adopted sweeping changes to allowable practices, reporting, and disclosure aimed primarily at advisers to private funds (the Private Funds Rules). These new rules under the Investment Advisers Act of 1940 (the Advisers Act) affect investment advisers differently depending on their registration status and location, the type of client advised, the investments held in the applicable private funds, and the types of relationships with private fund clients and investors. Notably, the Private Funds Rules do not apply to advisers’ securitized asset funds (as defined in Form PF and Form ADV). The new Private Funds Rules include
- restrictions on business practices and on “preferential treatment” by any advisers to private funds, not just advisers registered or required to be registered (including both U.S. and non-U.S. exempt reporting advisers (ERAs) and others)
- requirements for fairness or valuation opinions for adviser-led secondaries by registered private fund advisers (not by ERAs or other advisers not registered with the SEC)
- requirements for quarterly statements and annual audits for private fund clients of registered advisers (not of ERAs or other advisers not registered with the SEC)
The Commission provided for a staggered set of compliance dates for the new rules (see the compliance table at the end of this Client Update). The Commission also provided an overview of the new requirements to supplement the adopting release for the Private Funds Rules.
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