Long Anticipated Private Funds Rule Adopted by SEC, Requiring Significant Changes for Investment Advisers

On August 23, 2023, the SEC split along party lines and approved the new “Private Funds Rule” in order to increase the transparency and oversight of private funds. The final version of the Private Funds Rule brings significant changes to the $20 trillion private fund industry, scaling back some of the outright prohibitions in the proposed rule that could have shifted the balance of power between sophisticated investors and private fund advisers, now requiring either disclosure or consent. The Private Funds Rule is comprised of five separate rules, which the Morrison Cohen Investment Funds & Advisers team discusses in the attached Client Alert.

Key takeaways from the new Private Funds Rule include: 

• Registered investment advisers will now need to send detailed quarterly statements to investors which will include information regarding fees, expenses and performance, and obtain audited financial statements for all private funds that they manage. 
• All investment advisers, whether registered or not, will need to comply with new rules regarding restricted activities and preferential treatment, impacting the manner in which investment advisers may enter into side letters with key investors.  
• Registered investment advisers engaging in GP led secondaries, which have gained popularity in recent years, will now be required to obtain a fairness opinion or independent valuation in connection with any such transaction. 

For more important takeaways, see the attached Client Alert.

The Morrison Cohen Investment Funds & Advisers team is available to provide regulatory advice to investment advisers in the rapidly changing regulatory environment.