Final Private Fund Reforms: Overview of the New Rules and Analysis of the Restricted Activity Requirements (Part One of Three)

On August 23, 2023, the SEC adopted final rules for private fund advisers (Rules). The five new Rules require advisers to provide quarterly fee, expense and performance statements; annual fund audits; fairness or valuation opinions in connection with adviser-led secondary transactions; disclosure and consent for certain “restricted activities;” and disclosures concerning preferential treatment of investors. The SEC also amended Rule 206(4)‑7 under the Investment Advisers Act of 1940, known as the “Compliance Rule,” to mandate written documentation of the adviser’s annual review of the effectiveness of its compliance program. The Rules, and the associated adopting release, represent yet another seismic shift for a private funds industry that has already been grappling with a spate of recent SEC proposals, final rules and enforcement efforts under the Gensler administration. To help sponsors understand the scope and impact of the Rules, the Private Equity Law Report interviewed an array of experts for their impressions. This first article in a three-part series provides a brief overview of the Rules before delving deeper into the five categories of restricted activities. The second article will parse issues associated with the quarterly reporting requirements, while the third article will highlight considerations in the other Rules. See “SEC Risk Alert Emphasizes Need for Newly‑Registered Advisers to Hit the Ground Running With Their Compliance Programs” (May 18, 2023); and “No Longer a Slap on the Wrist: SEC Penalties and Sentences on the Rise” (Mar. 23, 2023).

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