SEC Finalizes Private Funds Rule, Industry Files Suit

On August 23, the Securities and Exchange Commission (SEC) finalized expansive private fund reforms. According to a recent client alert from Ropes & Gray, these reforms include several quarterly reporting requirements with respect to performance and fees and expenses, increased transparency regarding side letters and other “preferential treatment” for fund investors, prohibitions on certain liquidity rights and information sharing with fund investors, and limitations on the ability of fund managers to obtain reimbursement from private funds for costs associated with government investigations. Additionally, the SEC set varying compliance dates for the new rules depending on the rule and size of the adviser.

In response to the final rule and new requirements, on September 1, an industry coalition comprised of trade groups representing the hedge fund, private equity, and venture capital firms filed a lawsuit in the United States Court of Appeals for the Fifth Circuit against the SEC challenging the final rule. The coalition contends the rule exceeds the SEC’s authority under the Investment Advisers Act of 1940 and runs counter to the SEC’s stated mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. They emphasize that as a result of the SEC’s amendments, investors are likely to see increased fees, less competition, and decreased investment choice.

In September, Ropes & Gray plans to host a series of webinars detailing the impact the finalized proposal will have on private funds. Click here to register for all or one of the program offerings.

Click here to read a Ropes & Gray client alert on the SEC’s final private fund reforms.