More from: David Solander, Rule 211(h)(1)-2, McDermott Will & Emery
David N. Solander is a Partner at McDermott Will & Emery LLP. This post is based on his MWE memorandum.
On August 23, 2023, the US Securities & Exchange Commission (SEC) adopted new and amended rules (the New Rules) under the Investment Advisers Act of 1940 (Advisers Act) that focus on the SEC’s desire to address what it views to be “risks and harms that are common in an adviser’s relationship with private funds and their investors.” Throughout this article, we will summarize the New Rules, explore their effect on investment advisers to private funds and highlight some of the SEC’s stated views in the adopting release.
Our discussion of the New Rules has been separated into five parts:
- The Restricted Activities prohibit some practices unless certain consent or disclosure obligations are met (walking back many outright prohibitions sought in the rule proposal).
- Preferential Treatment restrictions and disclosure obligations, which are generally designed to address side letter arrangements favoring certain private fund investors.
- The obligations of advisers to send Quarterly Statements to investors.
- Requirements for advisers when undertaking Adviser-Led Secondaries.
- The Mandatory Audits provision for private funds and the Written Annual Review requirement to document annual compliance reviews under Rule 206(4)-7.
The New Rules also add books and records requirements to document compliance.