SEC finalizes rules for private fund advisers

The rules increase visibility into certain practices involving adviser compensation schemes, sales practices and conflicts of interest through disclosure; establishing requirements to address such practices that have the potential to lead to investor harm; and restricting practices that are contrary to the public interest and the protection of investors.

Relevant dates

• The final rules will be effective 60 days following the posting to the Federal Registrar using the below compliance date guidelines:

The SEC has released its final rules for private fund advisers. These rules aim to protect those who directly or indirectly invest in private funds by requiring a registered fund advisor to:

• provide quarterly statements to private fund investors detailing performance, fees and expenses for each private fund it advises;
• obtain an annual audit of each private fund it advises, meeting the requirements of the audit provision under Rule 206(4)-2(b)(4) (the SEC Custody Rule or the Custody Rule); and
• obtain a fairness or valuation opinion from an independent opinion provider in connection with an adviser-led secondary transaction.

In addition, the final rules restrict all private fund advisers, including those that are not registered with the Commission under the Advisers Act, from

• engaging in certain restricted activities unless appropriate disclosure is made, and in certain cases, consent is obtained.
• providing certain types of preferential treatment that would have a material, negative effect on other investors, subject to certain exceptions; and other types of preferential treatment to any investor in a private fund, unless the adviser satisfies certain disclosure obligations.