On August 23, 2023, the Securities and Exchange Commission (the “SEC”) voted 3 to 2 (Commissioners Peirce and Uyeda dissenting) to adopt new rules and amendments under the Investment Advisers Act of 1940 (the “Advisers Act”) that impose burdensome new requirements on investment advisers to private funds (the “Final Rules”). The Final Rules represent a significant expansion of the SEC’s regulation of private fund advisers and will considerably alter how private fund advisers and investors in private funds—typically institutional investors, pension plans and high-net-worth individuals—structure their relationships. This memorandum supplements the discussion in our publication dated August 24, 2023 and provides a more detailed summary and analysis of the Final Rules. On September 1, 2023, a petition to review the Final Rules was filed in the United States Court of Appeals for the Fifth Circuit.
According to the SEC, the Final Rules are intended to protect investors in private funds by increasing their visibility into certain practices regarding fees, expenses and fund performance; increasing disclosure around potential conflicts of interest; establishing requirements to address certain practices that the SEC believes have the potential to harm investors; and prohibiting or restricting certain practices that the SEC believes are contrary to the public interest and the protection of investors. Although certain problematic aspects of the proposal, which we summarized and discussed in our publication, dated February 16, 2022, have been abandoned or modified, the Final Rules impose significant proscriptive disclosure and other requirements on private fund advisers, including in some cases private fund advisers that are not required to be registered with the SEC. Ultimately, the Final Rules will create substantive compliance and reporting requirements that are in certain respects more detailed and potentially more onerous than what are currently required from registered funds.
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