Carrying out a commitment made by SEC Chairman Gary Gensler “to bring greater transparency and competition” to the private markets, the SEC has begun to focus on private funds, an area that has been subject to very limited SEC oversight in previous administrations.
First, on January 26, the SEC proposed amendments to Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds. The amendments would:
- require prompt reporting – i.e., within one business day – of certain events (including certain extraordinary investment losses, significant margin and counterparty default events, and material changes in prime broker relationships, among other things) for large hedge fund advisers and advisers to private funds;
- reduce the threshold for reporting as a “large private equity advisor” from $2 billion to $1.5 billion in equity fund assets under management, and require more information regarding various matters, such as fund strategies, use of leverage, and portfolio company restructurings and recapitalizations; and
- require large liquidity fund advisors to report the same types of information that money market funds would report on Form N-MFP, as proposed to be amended.
These amendments are subject to an unusually short public comment period of 30 days, which has generated negative comments from some Commissioners and legislators.
Then, on February 9, the SEC proposed new rules and amendments “to enhance the regulation of private fund advisors and to protect…investors by increasing transparency, competition, and efficiency” in the market. The proposed new rules would:
- require registered private fund advisers to provide investors with quarterly statements detailing information about private fund performance, fees, and expenses;
- require registered 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;
- require registered 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;
- prohibit all private fund advisers, including those that are not registered, from engaging in certain activities and practices that are contrary to the public interest and the protection of investors; and
- prohibit all private fund advisers from 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.
While the proposed disclosures would not be filed with the SEC or publicly available, they would represent a significant expansion in the types and amounts of information provided.
These proposals are subject to public comment for the greater of 60 days from publication on the SEC’s website or 30 days from publication in the Federal Register, possibly in response to concerns about the short comment period for the January proposals.
Please direct any questions or observations to Gunster securities law and corporate governance practice leader Bob Lamm.
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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
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