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17 January 20233 minute read

SEC issues new Marketing Rule FAQ on private fund net performance

On January 11, 2023, the US Securities and Exchange Commission Division of Investment Management staff published guidance under Rule 206(4)-1 under the Investment Advisers Act of 1940 (the Marketing Rule) in the form of an FAQ. The FAQ addresses the presentation of the gross and net performance of a single investment or a group of investments derived from a portfolio.

In the FAQ, the staff indicates its belief that the performance of one investment (for example, in a case study) or a group of investments in a private fund is “extracted performance”1 under the Marketing Rule and therefore subject to the Rule’s extracted performance provisions.2 Consequently, a registered investment adviser may not show gross performance of one investment or a group of investments in a covered advertisement without also showing the net performance of that single investment or group of investments, respectively.3

The FAQ also reminds advisers that when presenting extracted performance, the adviser must satisfy the Rule’s other tailored disclosure requirements and general prohibitions, including the general prohibition against specific investment advice not presented in a fair and balanced manner.

In light of the FAQ, advisers should take the following steps with respect to marketing material containing extracted performance (including case studies):

  • Review to confirm that any presentation of extracted performance on a gross basis is also presented on a net basis with equal prominence.
  • Confirm whether such marketing material includes, or offers to provide promptly, the performance results of the total portfolio from which the performance was extracted.
  • Review and confirm that the marketing material includes applicable disclosures, including but not limited to:
    • that the extracted performance represents a subset of a portfolio’s investments, including the criteria used to select the extracted investments and
    • any particular differences in performance results between the entire portfolio and the extracted performance, including any assumptions underlying the extracted performance necessary to prevent the performance results from being misleading.
  • Verify that the extracted performance includes all investments that fall within the represented selection criteria.

The SEC did not provide additional guidance on how to calculate net performance of such investments, which will require careful consideration and tailored disclosures.

If you have any questions about the Marketing Rule or the recently published guidance, please contact the authors, your DLA Piper relationship attorney, or another member of the DLA Piper Investment Funds team.

For additional information on the Marketing Rule, please see the related DLA Piper publication, "How private fund advisers are preparing for the upcoming compliance date for the SEC’s Marketing Rule."


[1] “Extracted performance” means the performance results of a subset of investments extracted from a portfolio.  Rule 206(4)-1(e)(6). 

[2] See FAQ, n.2.

[3] See Rule 206(4)-1(e)(7), (10).