SEC NEWS AND SPEECHES—Commission approves new rules to broaden private fund oversight, compliance - 26 August 2023

Staffers say the rules are designed to protect private fund investors by increasing transparency and competition in the private funds market, but the Commission’s approval is controversial.The SEC passed final rules and amendments governing private funds under the Investment Advisors Act of 1940 (Advisers Act) Wednesday by a 3-2 vote, with SEC Commissioners Hester Peirce and Mark Uyeda voting against the changes.

The rules require private fund advisers who are registered with the Commission to provide investors with quarterly statements regarding private fund performance, fees and expenses. The advisors also will be required to have each private fund audited annually, and to solicit a fairness opinion in connection with an adviser-led secondary transaction.

The final rules prohibit private fund advisers from engaging in certain activities and practices that the SEC characterizes as contrary to public and investor interests unless they provide certain disclosures to investors, and in some cases, receive investor consent. The rules also bar preferential treatment that has a negative material effect on other investors, and they prohibit other types of preferential treatment unless disclosed to investors.Further, rule amendments require all registered advisers, including those that do not advise private funds, to document an annual review of their compliance policies and procedures.

The rules will be effective 60 days after publication in the Federal Register. For the Private Fund Audit Rule and the Quarterly Statement Rule, the compliance date would be 18 months after the date of publication in the Federal Register. For the Adviser-Led Secondaries Rule, the Preferential Treatment Rule, and the Restricted Activities Rule, the Commission is considering staggered compliance dates for advisers based on private fund assets under management. Compliance with the amended Advisers Act compliance rule would be required 60 days after publication in the Federal Register.

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