SEC proposes fundamental changes to private fund regulation
On February 9, 2022, in a 3-1 vote, the US Securities and Exchange Commission proposed a series of new rules and amendments under the Investment Advisers Act of 1940 that, if finalized, would impose a host of new and onerous mandates on private fund1 advisers, including those not registered with the SEC. Certain of the proposals codify positions we have seen the SEC staff take during exams, while others appear to derive from pronouncements by limited partner industry groups.
Below we briefly summarize the proposed rules and related amendments and identify each category of adviser they will impact. Check back for additional updates as we continue to monitor the rule proposal and market reaction.
What was included in the package of new rules and amendments?
SEC-Registered Private Fund Advisers
Quarterly Statement Rule
Private Fund Audit Rule
Adviser-Led Secondaries Rule
All Private Fund Advisers
(including state-registered advisers, exempt reporting advisers, and all others that are not registered with the SEC or with the states)
Prohibited Activities Rule
Preferential Treatment Rule
Books and Records Rule Amendments
Compliance Rule Amendments
The public comment period will remain open for 60 days following publication of the proposing release on the SEC’s website on February 9, 2022 (ie, April 11, 2022), or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.
Given that many of the proposed rules would represent a significant departure from long-standing market practice, we expect private fund advisers and other industry participants to be highly engaged in providing comments and input during this period. If the proposed rules are adopted, the SEC is proposing a one-year transition period for advisers to come into compliance, including with respect to existing funds, for which no grandfathering is proposed.
If you have any questions about the proposed rules, submitting a comment, or how the proposed rules may impact your business, please contact the authors, your DLA Piper relationship attorney or a member of the DLA Piper Investment Funds team.
1 A “private fund” is defined as an issuer that would be an investment company but for the exclusions contained in Section 3(c)(1) or 3(c)(7) of the Investment Company Act of 1940. Notably, this definition does not include many real estate funds, including those relying on Section 3(c)(5)(C). The SEC has requested comment on whether certain aspects of the proposed rules should apply to real estate funds and other types of pooled investment vehicles that are not “private funds.”