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    Feb. 19, 2026

SEC Proposes Amendments to Small Entity Definitions for Investment Advisers

On January 7, 2026, the SEC issued proposed amendments (Proposal) to the definitions of “small business” and “small organization” under the Investment Company Act of 1940 and the Investment Advisers Act of 1940, respectively, as those terms apply to investment advisers, registered investment companies and business development companies. When conducting economic impact assessments pursuant to the Regulatory Flexibility Act (RFA), the Proposal would require the SEC to weigh the impact on a far broader swath of the private funds market than heretofore. Long defined as entities with up to $25 million in assets under management (AUM), the Proposal would categorize firms with up to $1 billion in AUM as small businesses for the purpose of RFA-based assessments. SEC Chair Paul S. Atkins described the Proposal as a step in the agency’s ongoing efforts to streamline financial sector regulations and ameliorate the regulatory burden under which small entities operate. It is notable, however, that the Commission declined to adopt an alternate definition that would use employee headcounts to classify small businesses. Further, the Proposal will have limited impact in the absence of formal rulemaking. This article summarizes the Proposal and provides insights from industry experts about how it could impact fund managers if enacted. See “Division of Investment Management Staff Discuss Staffing, Operations, Rulemaking and Other Developments” (Oct. 16, 2025).

What to Know About the Sleeping Giant That Is the SEC’s Amended Regulation S‑P

In May 2024, the SEC adopted amendments (Amendments) to modernize Regulation S‑P, the agency’s framework for protecting consumer personal information at designated financial institutions (Covered Institutions). The Amendments substantially expand requirements for safeguarding customer information, including mandates to establish written incident response programs, notify customers of data breaches, implement additional service provider oversight and meet new recordkeeping requirements. The Amendments also broaden the scope of Covered Institutions to include all transfer agents, whether registered with the SEC or another appropriate regulatory agency. Large Covered Institutions – including SEC-registered investment advisers with $1.5 billion in assets under management, investment companies with $1 billion in net assets and all broker-dealers that are not small institutions under the Securities Exchange Act of 1934 – were required to be in compliance by December 3, 2025. All other covered institutions must comply by June 3, 2026. The Amendments’ changes pertaining to notice and incident response program requirements will prove particularly challenging for Covered Institutions, including investment advisers. In this guest article, Goodwin partner Kaitlin Betancourt examines those challenges and offers practical compliance guidance. Although large Covered Institutions already may have updated policies and procedures, this article highlights areas in which more preparation might be needed. See “What Regulated Companies Need to Know About the SEC’s Final Amendments to Regulation S‑P” (Aug. 22, 2024).

Expanded Qualified Small Business Stock Rules Under the One Big, Beautiful Bill Act

Section 1202 of the Internal Revenue Code permits a taxpayer to exclude from income a portion of the gain on a sale of qualified small business stock (QSBS). The One Big, Beautiful Bill Act (OBBBA), which took effect on July 4, 2025, expanded the benefits available under Section 1202 by, among other things, permitting a partial exclusion after a three-year holding period, increasing the eligible issuer size and raising the cap on excluded gains. A program at the FRA Private Investment Fund Tax & Accounting Forum explained how the OBBBA expanded the Section 1202 regime; identified ambiguities under the amended regime and concerns around investments in partnerships; and discussed potential workarounds and alternative strategies for disposing of QSBS. The panelists included Seward & Kissel partner Brett Cotler, Lowenstein Sandler partner Kristin V. Taylor and Grant Thornton Advisors manager Blaine Woodson. This article synthesizes their insights. See “How the Big, Beautiful Bill Impacts the Big, Beautiful Private Funds Industry” (Aug. 21, 2025).

Evolution of the Private Credit Industry and Ongoing Challenges

The private credit markets continue to evolve. As more capital flows into the market, private credit firms are chasing fewer deals and borrowers have greater negotiating power, according to the speakers at K&L Gates’ 2025 Asset Management and Investment Funds Fall Conference. The program examined the current state of the private credit market, including competition for PE deals; the evolving roles banks play in the market; and the challenges facing lenders, including weak loan covenants, concerns over lack of transparency, regulatory uncertainty, risks around retail capital and concerns over loan valuations. The program featured K&L Gates partners Ed Dartley and Adam J. Tejeda; Sean Coleman, CEO of private credit fund Eyre Street Capital; and Daniel Leger, senior managing director and partner at private lender Metropolitan Partners Group. This article synthesizes their remarks. See “ACC and EY Report Examines Growth Trajectory and Recent Trends in Private Credit” (Mar. 6, 2025).

Benchmarking AI Uptake by Compliance Functions

ACA Group (ACA), in cooperation with the National Society of Compliance Professionals (NSCP), has released its second annual artificial intelligence (AI) benchmarking report (Report), which is based on a survey of nearly 250 firms and compliance professionals. ACA and the NSCP conducted the survey to cut through the hype about AI and explore how it is presently used and where it is expected to be used, explained Carlo di Florio, president of ACA and former head of the SEC Division of Examinations, in a webinar reviewing the findings. The Report covers firms’ ever-increasing adoption of AI, how firms are using AI, the key risks associated with AI and how firms are seeking to mitigate those risks. This article synthesizes the key takeaways from the webinar and the survey’s key findings. See “Benchmarking Fund Managers’ Adoption and Governance of Generative AI” (Jan. 8, 2026).

Gibson Dunn Adds Two Partners With Fund Finance and Investment Funds Expertise

Gibson Dunn has welcomed two attorneys – Duncan K. R. McKay has joined the firm’s finance and investment funds practice groups, serving as a partner and head of fund finance in New York; and Marian Fowler has joined the Washington, D.C., office as a partner in the investment funds practice group. For insights from Gibson Dunn, see “What ‘Back to Basics’ Under Chair Atkins Means for SEC’s Division of Enforcement” (Feb. 5, 2026); and “Key Catalysts Behind the Emerging Trend of PE Spinouts (Part One of Three)” (Oct. 30, 2025).

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