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SEC Adopts Final Private Fund Adviser Rules

As seen in Crain's New York Business

On August 23, 2023, the Securities and Exchange Commission (SEC) adopted new rules (Private Fund Adviser Rules) to enhance the protection of private fund investors. This update represents a significant change to the private fund industry’s regulatory landscape and consists of the following rules, applicable to registered private fund advisers.

Restricted Activities Rule: Advisers will be prohibited from certain activities without disclosure and/or consent, such as:

  • Charging or allocating fees and expenses related to:
    • Investigations of the adviser or its related persons by any governmental or regulatory authority;
    • A portfolio investment on a non-pro rata basis, unless the allocation approach is fair and equitable, and the adviser distributes advance written notice of the approach, including an explanation of how it is fair and equitable;
    • The adviser’s regulatory, examination, or compliance costs; and
  • Reducing the amount of any adviser clawback by the amount of certain taxes, unless the adviser discloses the aggregate clawback to investors before and after taxes.

Preferential Treatment Rule: Advisers cannot provide preferential treatment unless clear terms are disclosed before an investor’s investment in the private fund and all preferential terms are disclosed at least annually to all investors. This includes:

  • Redemptions that advisers expect to have a material, negative effect on other investors, unless the ability to redeem is required by law or the adviser offers the preferential redemption rights to all other investors; and
  • Information about portfolio holdings or exposures that advisers expect to have a material, negative effect on other investors.

Quarterly Statement Rule: Advisers will be required to prepare quarterly statements providing investors with information on fund performance, costs of investing in the fund, fees and expenses paid by the fund, as well as certain compensation and payments to the adviser.

Audit Rule: Advisers will need to obtain annual and liquidation audits for each private fund that they advise, which must meet the requirements of the audit provisions in the Advisers Act Custody Rule (Rule 206(4)-2)). Additionally, the auditor of these funds will need to meet the standards of independence in Rule 2-01(b) and 2-01(c) of Regulation S-X.

Adviser-Led Secondaries Rule: Advisers will be required to obtain an independent fairness or valuation opinion, which addresses the fairness of interests offered to the private fund, and distribute the opinion to investors along with a written summary of any material business relationships between the adviser and opinion provider.

Recordkeeping Rule: Advisers must retain books and records related to each of the above rules and document, in writing, their annual review of their policies and procedures’ adequacy.

With so many new rules, it is essential for private fund advisers to be aware of when they all go into effect. Important timeframes to note include:

  • The Private Fund Audit Rule and the Quarterly Statement Rule become effective 18 months from the date of publication in the Federal Register.
  • The compliance dates for the Adviser-Led Secondaries Rule, the Restricted Activities Rule, and the Preferential Treatment Rule are staggered between 12 and 18 months from the date of publication in the Federal Register, depending on the size of the adviser.
  • Adherence to the amended Advisers Act compliance rule will be required 60 days after publication in the Federal Register.

For more guidance on SEC compliance and other issues private fund advisers face, contact Alexander Reyes at

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