On February 9, 2022, the Securities and Exchange Commission (the “SEC”) proposed new rules (see also fact sheet) for private fund managers, i.e., advisers to funds that are “private funds” under the Investment Company Act of 1940. Among other things, the proposals would:
- With respect to advisers to private funds required to be registered with the SEC:
Require them to provide investors with quarterly statements on performance, fees and expenses;
Require them to obtain an annual audit for each fund; and
Require them to distribute a fairness opinion in connection with certain secondary transactions; and
- With respect to advisers to private funds whether or not they are required to be registered with the SEC:
Prohibit them from acting in certain ways contrary to the public interest and the protection of investors;
Prohibit them from providing preferential treatment to certain investors except in certain cases if such treatment is disclosed to all investors; and
Require them to document in writing their annual review of compliance policies and procedures.
The proposed rules recognize the importance of the private fund industry, but are fairly far reaching in potential impact because they would affect practices now common in the industry. There is enough support for them, however, that some version of them may well be adopted.