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    Apr. 17, 2025

SEC No‑Action Letter Concerning General Solicitations Under Rule 506(c) Opens the Door to Retailization Efforts

On March 6, 2025, Latham & Watkins requested interpretative guidance from the SEC’s Division of Corporation Finance (Division) about the use of a minimum investment amount as a factor in determining reasonable steps to verify the status of accredited investors in securities offerings pursuant to Rule 506(c) of Regulation D under the Securities Act of 1933. The Division’s response on March 12, 2025 (No‑Action Letter) provides new guidance and firmer footing for issuers that wish to rely on Rule 506(c), which has been lightly used in the past because of the administrative burdens of confidently meeting its requirements. This article summarizes the No‑Action Letter and key issues highlighted by industry experts interviewed by the Private Equity Law Report, including the historical context of Regulation D offerings prompting the safe harbor; why, how and for whom 506(c) offerings will become more common; potential issues fund managers need to grapple with in 506(c) offerings; and where the No‑Action Letter fits in the SEC’s broader agenda under the Trump administration and incoming chair Paul S. Atkins. See “PE Industry in 2025: Trends in LPA Negotiations, Retailization Efforts and Compliance Practices (Part Two of Two)” (Jan. 23, 2025).

Protections GPs Negotiate in LPAs and With Senior Personnel to Curb the Burden of Clawback Obligations (Part Two of Two)

Although no private fund sponsor generally expects to see their GP clawback provision – the provision requiring them to reimburse LPs for excess carried interest distributions – triggered, the prospect of a triggering event can put fund managers in a difficult position. Not only can reputational harm occur with investors, but firms can face a liquidity crisis as they scramble to find the cash necessary to reimburse sums – sometimes large sums – to investors. In turn, GPs are heavily incentivized to put a suite of protections in place that can both prevent the likelihood of a clawback from being triggered and, if unavoidable, smoothen their ability to promptly – and ideally painlessly – repay investors. This second article in a two-part series identifies contractual mechanisms that GPs pursue to limit the scope and likelihood of clawbacks, as well as ways they improve their ability to hold current and former employees accountable for their respective shares of clawback obligations. The first article contextualized the increased focus on clawback provisions in GP‑LP negotiations and described additional protections LPs pursue to ensure they receive their share of fund profits. See “Current Trends and Pressure Points in Negotiations Around Distribution Waterfalls” (Jan. 23, 2025); and “How Carried Interest Clawbacks Preserve Investor Returns and Affect Taxation (Part Two of Two)” (Jun. 11, 2019).

Developments in Rated Note Fund Structures to Access Insurance Capital

Rated note structures enable insurance companies to invest in private funds and comply with the stringent regulatory requirements that apply to them. To facilitate access to insurance capital, rated note fund structures are evolving and rating methodologies are responding. To provide insights into the current landscape, innovative fund structures and the latest rating methodologies, Dechert hosted a webinar entitled, “Rated Note Fund Structures: New Trends and Rating Considerations for Insurance Investors and Managers,” which was led by Dechert partner Lindsay Trapp, and featured Dechert counsel Blake Gilson as well as Rory Callagy, associate managing director at Moody’s Ratings. This article summarizes relevant analysis from the webinar. For additional insights from Dechert, see our two-part series on closed-end funds of PE funds: “Relative Merits of Registration Options and an Infinite‑Life Structure” (Jun. 2, 2020); and “Considering Bespoke Valuation, Co‑Investment, Director and Tax Issues” (Jun. 16, 2020).

Navigating the Current State and Federal Regulatory Landscape of Restrictive Covenants

Restrictive covenants can protect an organization’s confidential information and trade secrets from departing employees, but regulators have been keen to ensure those measures do not prevent individuals from generating income. As a result, it is becoming increasingly difficult for fund managers to use non-compete and non-solicitation provisions in many states, and similar measures could be implemented at the federal level in the future. To highlight the latest legal developments surrounding restrictive covenants, Gibson Dunn hosted a webcast featuring attorneys Gina Hancock, Andrew G.I. Kilberg and Ashley Romanias. This article summarizes insights and takeaways that are relevant for PE sponsors and their portfolio companies, including alternative protective measures that can be taken that are less likely to run afoul of federal and state restrictions. For additional insights from Gibson Dunn, see our two-part series on launching a secondaries platform: “Why PE Sponsors Expand Into Secondaries and Key Pre‑Considerations to Weigh” (Oct. 26, 2021); and “Unique Aspects of Fund Structuring and Information Sharing Issues” (Nov. 2, 2021).

Present and Former SEC Officials Discuss Strategy, Testimony, Proffers and Negotiations

Although the new Trump administration is widely expected to favor business interests and ease regulatory burdens, the SEC is sure to continue its work rooting out misconduct in the financial markets. At the 2025 Securities Enforcement Forum New York, a panel of present and former SEC attorneys discussed the critical stages of an investigation by the SEC Division of Enforcement. The panelists offered guidance on preparing for initial contact with SEC staff; avoiding friction during the course of an investigation; preparing for interviews and on-the-record testimony; obtaining reverse proffers by the SEC; and managing the Wells process, negotiations and settlements. This article distills the key takeaways from the program. See “Speeches Outline the Ethos, Direction and Priorities of the SEC’s Division of Enforcement Under Gurbir Grewal” (Nov. 16, 2021).

Simpson Thacher Boosts Its Registered Funds and Private Funds Practices With Five New Partners

Simpson Thacher & Bartlett LLP has welcomed five new partners – a four-person team, comprised of Anne C. Choe, Justin L. Browder, Neesa Patel Sood and Bissie K. Bonner, has joined the firm’s registered funds practice; and Yonatan E. Levy has joined its private funds practice. For insights from Choe, see “SEC Sanctions Adviser for Inequitable Allocation of Deal Expenses Between Its PE Fund and Co‑Investors” (Jul. 26, 2022); and our two-part series: “Merits of the Pledge Fund Model and Attendant Fund Formation Issues to Consider” (Jun. 16, 2020); and “Notable Terms and Negotiating Points When Forming and Operating a Pledge Fund” (Jun. 23, 2020).

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