SEC Issues Proposal to Enhance Private Fund Investor Protection

The SEC has issued a proposed rule, Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews. The proposed rule would require:

• “[P]rivate fund advisers registered with the Commission to provide investors with quarterly statements detailing information about private fund performance, fees, and expenses.”
• “[R]egistered private fund advisers to obtain an annual audit for each private fund and cause the private fund’s auditor to notify the SEC upon certain events.”
• “[R]egistered private fund advisers, in connection with an adviser-led secondary transaction, to distribute to investors a fairness opinion and a written summary of certain material business relationships between the adviser and the opinion provider.”

In addition, the proposed rule would prohibit all private fund advisers from (1) “engaging in certain activities and practices that are contrary to the public interest and the protection of investors” and (2) “providing certain types of preferential treatment that have a material negative effect on other investors, while also prohibiting all other types of preferential treatment unless disclosed to current and prospective investors.” All registered advisers would also be required to document the annual review of their compliance policies and procedures in writing.

For more information, see the press release and fact sheet, as well as statements by SEC Chair Gary Gensler and Commissioners Allison H. Lee, Caroline A. Crenshaw, and Hester M. Peirce, on the SEC’s Web site.