SEC proposes new rules for private equity

By Jeff Drew

The SEC revealed plans Wednesday to require registered private fund advisers to provide investors with quarterly statements detailing select information regarding fund fees, expenses, and performance.

In a news release, the SEC provided details on a 341-page proposed rule designed to increase transparency, competition, and efficiency in the $18 trillion private-equity market.

"Private fund advisers, through the funds they manage, touch so much of our economy," said SEC Chair Gary Gensler in the news release. "I support this proposal because, if adopted, it would help investors in private funds on the one hand, and companies raising capital from these funds on the other."

The proposed rule would create new requirements for private-equity advisers related to fund audits, books and records, and adviser-led secondary transactions. In addition, the new roles would prohibit private fund advisers, including those not registered with the SEC, from providing certain types of preferential treatment to investors in their funds. Other types of preferential treatment would have to be disclosed to current and prospective investors, according to the release.

The proposals also would prohibit all private fund advisers from engaging in several activities, including:

  • Seeking reimbursement, indemnification, exculpation, or limitation of liability for a certain activity;
  • Charging certain fees and expenses to a private fund or its portfolio investments, such as fees for unperformed services and fees associated with an examination or investigation of the adviser;
  • Reducing the amount of an adviser clawback by the amount of certain taxes;
  • Charging fees or expenses related to a portfolio investment on a non-pro rata basis;
  • Borrowing or receiving an extension of credit from a private fund client.

In addition, the proposed rule amends the Advisers Act compliance rule to require all registered advisers, including those that do not advise private funds, to document the annual review of their compliance policies and procedures in writing.

The SEC will accept comments on the proposed rule for either 60 days following publication of the proposing release on the SEC's website or 30 days following publication of the release in the Federal Register, whichever period is longer.

Other SEC news

Also Wednesday, the SEC voted to propose rules related to cybersecurity risk management for registered investment advisers and to propose rule changes to reduce risks in the clearance and settlement of securities, including by shortening the standard settlement cycle for most broker-dealer transactions in securities from two business days after the trade date to one business day after the trade date.

— To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.com.

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