SEC Adopts Changes for Private Fund Advisers

The U.S. Securities and Exchange Commission recently adopted rules under the Investment Advisers Act of 1940 (the “Act”) that will impact private fund advisers, including hedge funds, private equity shops and venture capital firms.

The new rules will take effect 60 days after publication in the Federal Register (the “Effective Date”) and, notably, will enhance advisers’ reporting obligations to their investors and restrict advisers from providing preferential treatment to certain investors. Advisers subject to the audit and quarterly statement rules have 18 months after the Effective Date to comply. Advisers subject to the adviser-led secondaries, preferential treatment and restricted activities rules have 12 months after the Effective Date to comply if they have $1.5 billion or more in private fund assets under management and 18 months if they have less than that amount under management. Further, legacy status will exempt private fund advisers from certain parts of the rules, noted below, where (i) the fund has commenced operations as of the compliance dates, (ii) the governing agreements were entered into prior to the compliance date, and (iii) the portion of the rules (if applied and not grandfathered) would require the parties to amend their governing documents.

Generally, the new rules fall into five categories: restricted activities, preferential treatment, quarterly statements, annual audits and adviser-led secondaries. The new rules are briefly summarized in the chart here.