On December 3, 2025, a complaint (Complaint) was filed in Delaware Court of Chancery that highlights the potential risks when a fund sponsor seeks to push through a continuation vehicle (CV) transaction over the objection of existing investors. Specifically, the Complaint alleged that the conflicted CV transaction would have benefitted the sponsor and its affiliates while simultaneously harming the existing investors. Further, several procedural concerns related to the CV transaction were alleged in the Complaint, including that the sponsor used coercive, “underhanded” tactics that violated its fiduciary duties.

Although the Delaware Court of Chancery promptly approved a stipulation to temporarily halt the CV transaction until at least the end of February 2026, contingent on an independent arbiter’s review of the facts, the Complaint illustrates risks that can arise in CV transactions. This article summarizes the Complaint and the alleged conflicts of interest in the CV transaction; considers the frequency of investor complaints and litigation in CV transactions; explores what alternative steps the sponsor could have reasonably taken to mitigate the risks; and offers key takeaways from legal experts interviewed by the Private Equity Law Report.

See “Secondaries Unlocked: A Market Grown Up and Continuing to Evolve” (Nov. 13, 2025); and “SEC Charges PE Sponsor With Improper Accelerated Monitoring Fees and Continuation Fund Transfer” (Dec. 14, 2023).

Overview of the Complaint

Background

The primary plaintiff in the proceeding is the Abu Dhabi Investment Council Company PJSC (ADIC), which is a leading sovereign wealth fund operating out of the United Arab Emirates and part of the approximately $300‑billion Mubadala investment group. The other co-plaintiffs listed in the Complaint – Imperial Infrastructure Investments and Portman Limited – are wholly owned by ADIC.

The primary defendant, Energy and Minerals Group LP (EMG), is a PE sponsor with approximately $13 billion of assets under management as of September 2024. EMG operates through the following affiliates, which are also named as co‑defendants in the Complaint:

• EMG Fund II GP, LP, which is the GP of Fund II Offshore, LP (Offshore II);
• EMG Fund III GP, LP, which is the GP of Fund III Offshore, LP (together with Offshore II, the Funds); and
• EMG Ascent Continuation Fund, LP (EMG CV).

In 2011, ADIC began investing in the Funds, and served as a member of the LP advisory committee (LPAC) of each fund. Starting in or around 2013, the Funds made investments in Ascent Resources (Ascent), a natural gas producer, through two vehicles. Through those investments, EMG came to acquire a sizable total share of Ascent, along with playing a central role in Ascent’s corporate governance.

Urgent CV Approval Timing

Minimum Notice

On October 23, 2025, EMG informed LPAC members of its intent to conduct a special joint meeting and LPAC vote to approve selling 30 percent of its stake in Ascent to the EMG CV. Although the timing of the announcement satisfied the minimum required notice – just five business days – in the Funds’ limited partnership agreements, that notice period was equal to or shorter than significantly less consequential events (e.g., 10‑business days’ notice for funding mandatory capital calls).

In ADIC’s view, the notification offered limited information about the CV deal, promising more information at some unspecified later date. For example, EMG failed to provide an FAQ document to investors until October 29, 2025, just one day before the LPAC meeting was set to take place. ADIC argued in the Complaint that EMG’s decision to provide material information about a conflicted transaction so soon before the scheduled vote denied LPAC members the time needed to weigh critical facts and come to an informed decision about the proposed deal.

Expedited LPAC Vote

In the Complaint, ADIC accused EMG of moving at a “relentless” pace in its pursuit of LPAC approval for the CV transaction despite the clear conflicts of interest involved. According to the Complaint, ADIC was candid about its concerns about EMG’s “inexplicable rush” to put the CV transaction to a vote during the meeting on October 30, 2025, arguing that it and other LPAC members needed more time and information.

In response, EMG stressed the urgency of closing the transaction by the end of 2025, leaving the parties “a very limited window of time to launch the election process.” In keeping with its rushed approach, EMG provided ADIC with a presentation and fairness opinion on October 27, 2025, just three days before the scheduled meeting, and was not forthcoming with its FAQ document until October 29, 2025. “This needlessly expedited timeline and belated disclosures were contrary to industry standards,” according to the Complaint.

During the joint special meeting on October 30, 2025, EMG reiterated the supposed urgency for the LPAC to approve the CV deal by November 1, 2025, a date not in keeping with earlier deadlines EMG had put forth. In addition, ADIC claimed that EMG “monopolized” the meeting through such tactics as limiting LPAC members’ questions for EMG to 20 minutes.

When voting on the CV transaction finally took place, EMG garnered only three approval votes from 43 LPAC members – failing to gain CV transaction approval – amid abstentions from a large majority of LPAC members, some of whom continued to stress the need for more time.

See our two-part series on the evolution of LPACs: “Trends Toward Robust Procedures and Accountability for LPAC Members” (Oct. 8, 2019); and “Grappling With GP and LPAC-Member Conflicts of Interest While Avoiding Liability” (Oct. 15, 2019).

Stifled Discussion Among LPAC Members

Concurrent with its alleged efforts to expedite the vote on October 30, 2025, ADIC alleged that EMG attempted to prevent LPAC members from meeting and deliberating about the merits of the CV transaction. An email sent out by EMG stated that “no one is authorized to discuss the . . . analysis at the pre-meeting and it is a violation of the non-reliance letter to do so.” In response, ADIC and other LPAC members requested that EMG coordinate an in‑camera session for LPAC members only to discuss the CV transaction. EMG refused that request – “in direct contravention of industry guidance,” according to ADIC – citing the supposed impossibility of transferring hosting rights for the virtual meeting to another attendee.

According to the Complaint, EMG also refused to facilitate discussion among LPAC members about the CV transaction even after the special vote on October 30, 2025. Arguing that a discussion among LPAC members would merely lead to “misinformation and mischaracterization,” EMG sought to funnel all discussions through itself as “the only ones that truly have the facts and all relevant and accurate information.” Further, ADIC alleged that EMG neglected to provide clarity about whether it would call for a new vote after additional requested information was shared.

As a result of those actions following the special vote on October 30, 2025, eight LPAC members, including ADIC, explicitly requested that EMG put off any further vote for 30 days, to allow for more informed deliberation about its merits. After ignoring the request for almost a week, EMG then denied it and stated that “the vote remains open.” According to the Complaint, EMG also sought to take advantage of leaving the voting process ambiguously open by attempting to engage with LPAC members – and share information with certain members – on a selective, individual basis.

See “How Good Governance Frameworks Can Optimize Outcomes in Continuation Funds” (Mar. 15, 2022).

Flawed Disclosures and Information to LPs

Beyond the timing and procedural issues associated with how EMG conducted the LPAC approval process for the CV transaction, ADIC also alleged that EMG delivered either erroneous information or omitted key facts altogether.

In its ongoing effort to seek information that might clarify the proposed CV transaction, ADIC claims it sought access, through multiple requests starting on October 30, 2025, to a virtual data room that EMG’s advisor had allegedly used to keep track of EMG’s efforts to secure CV investor commitments and close the transaction. On November 8, 2025, EMG offered LPAC members a slightly revised version of the FAQ and allowed ADIC – but not many other LPAC members – access to the data room.

According to the Complaint, ADIC’s review of the information in the data room raised concerns about material misstatements and omissions in EMG’s earlier disclosures about the CV transaction. Specifically, a pair of confidential information memoranda (CIMs) that EMG had prepared for potential CV investors in March 2025 and September 2025, respectively, allegedly contained information about Ascent’s valuation, and possible strategic alternatives, that contradicted the “bleak commentary” on Ascent that EMG provided in disclosures to LPAC members in advance of the special meeting.

Skewed Metrics in Valuations

The fairness opinion prepared for the CV transaction drew heavily on information provided by EMG, with ADIC raising particular questions about analysis provided as to Ascent’s “inventory life” – i.e., how long Ascent would be able to sell natural gas before depleting its supplies. According to the Complaint, Ascent’s valuation in the fairness opinion suffered from a lowball estimate of that metric, whereas a markedly more positive picture was presented to investors by Ascent on November 5, 2025.

Further, despite claims in the initial notice that a “headline” price would be available to investors that chose to cash out, EMG offered investors that cashed out a share price significantly discounted from EMG’s Q3 2025 net asset value calculations for Ascent shares. ADIC went on to allege in the Complaint that EMG made false claims that Ascent’s uncompetitive standing as compared to certain industry peers made the proposed CV transaction pricing fair.

Denial of Alternatives

In its communications with investors on October 27, 2025, EMG rejected alternatives to a CV transaction, describing an IPO, for example, as “not the immediate path to monetization” for the investors, involving a prolonged path to monetization, public market volatility risk and a likelihood that final valuations would be significantly lower than what investors could otherwise realize through the CV transaction.

To support its argument, EMG provided an expected net present value that would be “materially lower” than was realizable through the CV transaction, the Complaint details. ADIC alleged in the Complaint, however, that EMG sought to roll over a portion of its own capital into the CV while investing additional capital at an “artificially low” price, presumably in anticipation of a merger or IPO in the foreseeable future.

To support its stance, EMG cited an IPO by another company in the natural resources sector that did not turn out as hoped for investors, leading to a marked decline in the company’s share price. Further, EMG dismissed out of hand any other alternatives to the CV transaction, including gauging M&A interest from third parties or pursuing a direct sale of the Funds’ Ascent shares, the Complaint alleges.

Failure to Disclose Self‑Interest

Finally, ADIC alleged that EMG downplayed its own interest in the CV transaction. The lower- and higher-end exit multiples of EMG’s projected fees and returns after exiting the Ascent investment did not reflect the actual range based upon EMG’s own calculations, the Complaint details. EMG was allegedly evasive in its response to ADIC requests for exact calculations and provided outcome scenarios that did not correspond exactly to the “base case and upside case” breakdowns ADIC had requested.

“Together, these key disclosure violations rendered meaningless the safeguards that [LPs] had negotiated for by including the [LPAC] approval requirements in the fund documents,” the Complaint states.

Alleged LPAC Approval and Initiated Litigation

Approximately two weeks after the special vote by the LPAC on October 30, 2025, EMG allegedly notified investors that, without holding any additional meetings, the CV had been approved by a majority of the LPAC. On November 20, 2025, EMG circulated an election form to all investors providing them the right to sell or roll their respective fund interests into the new CV, which would reset the sponsor’s entitlement to carried interest at the new valuation.

In response, ADIC sent EMG several demands on November 24, 2025, including a request for arbitration that required a 45‑day waiting period under the terms of the fund’s governing documents. As part of ADIC’s demand for arbitration, they requested that EMG delay closing the CV transaction until arbitration could begin. The following day, on November 25, 2025, EMG allegedly responded by refusing to agree to ADIC’s requests.

In response, on December 3, 2025, ADIC initiated litigation in the Delaware Court of Chancery seeking an injunction to preserve the arbitrator’s ability to award effective relief. On December 4, 2025, EMG agreed with ADIC to delay closing of the CV until the arbitrator could issue a decision.

Key Takeaways

Although the actions and behavior described in the Complaint must be treated only as allegations, there are a number of practical takeaways for sponsors to consider as they undertake future CV transactions.

Practical Components of CV Deals

Scope of Information

The legal action against EMG underscores that GPs need to communicate with investors about the CV transaction over a reasonable time frame and in a transparent, consistent and fair-minded manner, in the view of Davis Polk partner Leor Landa. “There should be multiple touchpoints with LPs over the course of a CV transaction so the GP can explain its rationale, describe the parameters of the specific transaction and react to investor feedback.”

Based only on the actions described in the Complaint, “this matter reinforces the notion that regular and transparent communication is a hallmark of a good CV transaction,” Landa reasoned. “If you would rather do a CV transaction than an M&A sale or an IPO, you have to be able to articulate the reasons,” he added. “Being transparent and forthcoming with investors also has the benefit of mitigating both legal and commercial execution risks, the latter by giving GPs an opportunity to assess sales volume and clearing price.”

In the circumstances, it would have been prudent for EMG to present itself to investors as available and approachable, Landa stated. The GP would have been well-advised to organize an executive session with investors as and when needed, and to convey a message to the effect of, “If you have questions about the deal, we are the ones who have the answers, and we need to be in the room to help answer your questions.”

Equitable Disclosures to All Investors

Transparent and nonselective communications (i.e., communications that reach all investors rather than a selective subset) of the rationale for a CV transaction should be an obvious step for GPs, and its absence here is notable, agreed King & Spalding partner Daniel Daneshrad. The importance of that approach applies not only to communication between EMG and investors, but also to communication among investors. “The Complaint illustrated how, from ADIC’s point of view, EMG was very selective in the notifications and disclosures that it provided, and discouraged people from talking to each other about the deal,” he observed.

Instead of using the many opportunities available in the time before the projected closing of the CV transaction, EMG allegedly followed up on the disappointing results of the LPAC vote – where only 3 out of 43 LPAC members voted in favor of the CV transaction – by making minor concessions to individual investors and seeking to win them over, a strategy that violated the GP’s duty to treat investors equitably. “CV transactions are ‘conflicted’ by nature,” noted Winston & Strawn partner Scott Naidech. “As a result, you always need to be mindful that you’re running a fair process and abiding by your contractual and fiduciary duties to all your stakeholders.”

According to the Complaint, EMG also showed prospective new investors a data room full of information about what coming into the Funds entailed, but didn’t provide that same information to existing investors that EMG was going to force to choose between rolling and selling, Daneshrad pointed out. “I tell my clients, ‘Disclose to your existing and your incoming investors the same information about the product you’re asking (or forcing) them to invest in.’”

See “SEC 2026 Examination Priorities Highlight Classic Compliance Issues, Retailization Efforts and AI Oversight” (Jan. 8, 2026); and “Practical Insights on Five Problematic GP/LP Dynamics Identified by SEC Chair Gensler” (Feb. 1, 2022).

Fair CV Deal Process

The responsibility to communicate equitably with all existing and prospective investors places special burdens on GPs to run a fair and transparent CV process.

“For that to happen, you need to make all appropriate disclosures to your LPs and LPACs at the right times, and ensure you or your advisors are answering all their questions and keeping them informed about the process,” Naidech summarized. “LPAC approval is often a cornerstone to getting conflicts waived and moving forward with the deal, so it’s crucial to have consistent outreach with your LPAC, inform them about the process and ensure they’re on board,” he emphasized.

“Down the road, if an investor wants to be a squeaky wheel and complain about the price or the transaction, then the GP can say, ‘Well, we ran a fair process to get the best result,’” Naidech continued. To prove the fairness of a GP’s CV process, he noted that it is helpful if they can point to a variety of steps taken along the way, including that they:

• worked with the LPAC to get its approval;
• hired an independent financial advisor;
• obtained a fairness opinion from a third party; and
• solicited and vetted bids from potential investors.

Completing each of those measures can lend credibility to GP claims that they picked the best offer, and pursued the optimal process, with their existing LPs’ best interests in mind.

Further, it is worth noting that prospective investors in CV transactions can be another “force for good” in ensuring that GPs run sound CV deal processes, Landa added. “CV transactions are an area where buyers and advisors tend to impose good processes, even if sponsors do not do so naturally,” he reflected. “Buyers and advisors do not want to be involved in deals where there are allegations of a bad process, as that type of negative publicity does not help anyone – buyers, sponsors or advisors.”

See “SBAI Introduces New Standards and Accompanying Guidance on Valuing Illiquid Assets” (Apr. 3, 2025).

Rarity of Litigation

In view of the different parties’ shared interest in a successful process, and the ongoing utility of CV transactions, Landa finds it unlikely that the litigation between EMG and ADIC will encourage similar legal actions. “CVs are wonderful tools, and we expect their popularity to grow,” he summarized. “If there is anything to learn here, it is that we need to make sure we are really focused on the process, transparency and rationale for CV deals.”

In fact, stepping back from the EMG matter, it is important to remember that LP-driven lawsuits against GPs over CV deals are still a relatively rare phenomenon, Landa noted. “Complaints are rare, because GPs are usually careful to run a fair process, get their LPAC on board and get appropriate conflict waivers,” Naidech agreed. “If you follow market practices, you should be able to vet problems early on and deal with them.”

The level of communication between GPs and their investors – and the space that gives GPs to work through issues and questions with their investors – is usually sufficient to avoid the kind of outcome seen in the EMG matter, Landa noted. “Usually, there are a lot of opportunities for LPs to raise issues and for GPs to react to them and to contextualize and explain issues,” he observed. “So when an LP does raise a complaint – which is not particularly common – the GP can work through that issue, while also ensuring investors feel their voices are heard and their concerns are understood.”

Echoing that point, Daneshrad asserted that although it is common for investors to ask questions about CV transactions, LP complaints typically only arise when GPs fail to answer those types of questions. “In fact, LPs’ questions tend to be very much along the lines of those that ADIC and its affiliates repeatedly posed and that EMG did not answer to their satisfaction,” he said.

See “Inflection Points in Negotiating PE Fund Core Economic Terms and Structuring GP-Entity Carry Allocations to Incentivize Employees” (Aug. 4, 2020).

Alignment of GP‑LP Interests

It would be a mistake to portray the EMG matter as somehow representative of deeper problems in the CV market, or the attitudes and behavior of GPs that lead CV transactions. Instead, in many cases, LPs have been, and continue to be, the beneficiaries of such transactions, with strong protections rooted in their origins, Landa stated. CV transactions were originally introduced for assets acquired before, and devalued during, the global financial crisis of 2008, with CV processes implemented in those difficult circumstances to ensure that LPs were given the best possible choices and not being coerced into something bad.

By contrast, the CV market today typically centers on trophy assets that are being sold at attractive prices, with a lot more participants in the market to vet pricing and terms, Landa continued. “Although CV deals are better now, the basic scaffolding that GPs and their lawyers built back then to protect investors in tough circumstances remains, even as the market has evolved and innovated,” he reasoned. “Most CV transactions these days go very smoothly, and given the broad lack of liquidity in the markets, we are seeing very high sales volume. LPs are typically happy to participate and receive liquidity.”

Instead, the EMG matter serves as a helpful reminder to the PE industry that people pay attention to deal terms, no matter how prevalent CV transactions have become, Daneshrad asserted. “But that is healthy, because a lot of the transactions are sound and take place for a very real structural reason: ever since the Sarbanes‑Oxley Act and the Dodd‑Frank Act, the public markets have become less popular and companies want to stay private for longer, which CV transactions facilitate.”

See “Continuation Vehicles Survey Highlights Increasing Convergence of Some Terms, Vicissitudes Among Others” (May 29, 2025).

Faced with the rapid retailization of the private funds industry, many institutional investors are trying to get ahead of potential issues by adopting proactive measures to mitigate future risks therefrom. There may not be much that those investors can do to protect their existing private fund investments, aside from leveraging their relationships with managers. As to future investments, however, institutional investors can factor fund managers’ retailization stances into their allocation decisions, as well as negotiate certain legal protections in their fund documents and side letters.

This third article in a three-part series explores how the impact of retailization on managers’ operations will affect institutional investors, as well as legal protections the latter can negotiate in conjunction with their future allocations. The first article delved into the market and regulatory efforts driving retailization, and how that is stoking fears among institutional investors. The second article examined specific concerns about how retailization will affect everything from fund liquidity, governance rights and co‑investment allocations.

See “How Key PE Fund Terms Are Being Shaped by Current Fundraising Challenges, Liquidity Needs and Distinct Shifts in the Market” (Feb. 9, 2023).

Risks to Managers’ Operations

Some institutional investors have raised concerns about the potential trickle-down effect they will experience from how GPs’ operations and resources are redirected and stressed by the influx of retail capital.

Infrastructure Needs

Additional Resources

Sponsors welcoming retail LPs en masse will quickly find that their existing administrative and reporting infrastructure is unsuitable for managing and responding to a vastly increased and diversified investor base, in the view of CohnReznick partner Jeremy Swan. As sponsors put more infrastructure in place to accommodate retail investors, there will be significantly more associated costs for the firm’s back office, he observed. “Sponsors will quickly come to the realization, ‘Okay, now we have 50,000 new investors.’ All the tracking, reporting and regulatory compliance associated with those investors adds up very quickly.”

Accelerated retailization also raises concerns related to time and attention of key staff at sponsors, asserted Neal Prunier, managing director for industry affairs for the Institutional Limited Partners Association. “Will the attention of existing staff be split between retail and institutional funds, or are there going to be different staff members for the different products?” he queried. If the latter, then the funds will need to adopt significantly broader internal infrastructure.

Expense Allocations

The issue of expense allocations has largely gone unaddressed amid the rush toward retailization, but is certain to draw the ire of institutional investors who are wary of incurring the pro rata distribution of new expenses arising from retailization, Swan stated. “For costs arising from retailization, institutional investors will say, ‘It doesn’t benefit us, so why should we pay for it?’” he reasoned. “Managers will push back by arguing, ‘Well, actually, you do benefit because now you’re part of a larger fund,’ which is a circular argument because institutional investors will respond by saying, ‘Yes, we’re part of a larger fund, but we’re a smaller part of that larger fund.’”

It is too soon to say, however, exactly what more retail investors will mean in terms of any additional manager infrastructure costs, or how those costs will be allocated among investors, in the view of Seyfarth Shaw partner Steven A. Richman. “Many expect the cost of putting in place and managing the retail fund to be borne by the retail fund, and not separately charged as a shared partnership expense that institutional investors will have to help shoulder,” he said. “But it’s going to take transparency, and people paying close attention to expense reporting, to ensure that is actually the case,” he continued. “We don’t yet know whether managers will push to share costs across their closed-end vehicles by saying, for example, ‘We’re just allocating the accounting costs across platforms.’”

“Ideally, large GPs will raise retail capital quickly enough that they can actually allocate costs in a fair and reasonable manner,” Richman posited. “The real problem may arise with mid-market PE firms that don’t raise capital as quickly as they hoped or raise as much as they hoped,” he cautioned. “If so, they are going to feel pressure to allocate the costs of running and maintaining their retail funds to their closed-end vehicles.”

ERISA Litigation

Most retail capital will invest in the PE industry through employee benefit plans (e.g., 401(k) plans), which are managed by plan sponsors pursuant to the Employment Retirement Income Security Act of 1974 (ERISA). The problem in recent years is that, due to the myriad obligations that ERISA imposes, the fiduciary committees of employee benefit plans have been haunted by the threat of lawsuits over any allocation of defined contribution plan money to PE and other types of alternative assets.

The concern is that, by welcoming retail capital into the industry, PE sponsors will fall within the crosshairs of a very litigious ERISA plaintiffs’ bar that is eagerly willing to pursue any alleged actions perceived to fall short of the ERISA fiduciary standards. “That risk hearkens back to the global financial crisis of 2008, when plaintiffs’ lawyers appeared on billboards up and down highways saying, ‘Do you have losses in your 401(k)? Call us,’” Richman recalled. “It’s almost inevitable that, at some point, with a downturn in the market, that phenomenon will return.”

Notably, the effects of ERISA litigation resulting from retailization are unlikely to be felt evenly across the markets, Richman continued. “Large PE firms might be sufficiently well-resourced to manage those risks. As you start pushing downstream, however, will the litigation start taking time and platform resources away from a sponsor’s pursuit of its core investment thesis for its other private funds?” he posited. “The presumption is that it probably will, and the potential consequences from that remain to be seen.”

See “Executive Order on Alternative Assets in 401(k) Plans: Navigating ERISA Litigation Risks (Part Two of Two)” (Oct. 16, 2025).

SEC Scrutiny

In its 2026 examination priorities published on November 17, 2025, the SEC Division of Examinations expressed its intention to focus closely on advisers’ “adherence to their duty of care and duty of loyalty obligations . . . particularly with regard to aspects of their business that serve retail investors.” That announcement forebodes the strong possibility that the increased presence of retail investors and vehicles in the market will prompt intensive scrutiny from regulators, increasing the already sizable compliance burden faced by sponsors.

Many institutional investors may ask what the consequences will be for them of the SEC’s focus on GPs that cater to retail investors, acknowledged Akerman partner Christopher Mendez. The reputational and headline risk, and potential added compliance costs, are not lost on institutional investors, he pointed out. “From a legal compliance and cost perspective, sponsors will certainly need people in-house who really understand this area and can get out ahead of issues that may arise to ensure they avoid the regulatory crosshairs,” he suggested. “I’m interested to see, over the next year or two, whether enforcement actions come out related to managers managing pools of capital side by side, and some of the legal compliance obligations and requirements that come along with that.”

Although the possibility of increased SEC scrutiny from retailization is real, Morgan Lewis partner John J. O’Brien cautions that it is too soon to jump to any conclusions for now. “The SEC will keep a close eye on how the retailization trend develops, and has already signaled that it will do sweep exams or targeted exams of certain structures,” he said. “So, there might be some spillover contact for institutional LPs that trickles up through underlying private fund investments,” he reasoned. “Although that focus may create a little more market exposure to regulators than in the past, I’m not convinced that will represent a material risk to institutional investors,” he assured.

See “What to Expect on SEC Examinations Under the New Administration” (Sep. 18, 2025).

Protecting Against Retailization

The recent momentum of retailization in the private market is unlikely to slow in the foreseeable future, in the view of Tannenbaum Helpern partner Michele Itri. “It’s going to be very hard for institutional investors to avoid funds that are seeking retail investors, whether that is through registered fund investments or retirement plan investments,” she explained. “What I’m hearing – and the buzz at all the industry events – is that all types of PE sponsors, from emerging managers to large cap managers, are looking to open up their funds to retail investors because the potential is so enormous.”

As a result, institutional investors cannot simply “opt out” of the retailization trend by avoiding participating fund managers in an attempt to isolate themselves from the dilemma. Instead, institutional investors will need to remain vigilant about monitoring the situation, while also pursuing select measures to protect their respective interests going forward.

Limited Existing Options

Given the seeming inevitability of retailization, institutional investors concerned about its impact need to undertake a delicate balancing act to mitigate the potential effects. Many institutional investors have cordial relationships with GPs and are in a strong position to leverage those ties to prevail upon fund sponsors to respect and uphold their rights as investors, Richman conceded.

At the same time, institutional investors are at a disadvantage as to their existing investments because, unlike retail investors entering the market anew, they are unable to renegotiate their existing fund documents with retailization, and all its attendant issues, top of mind. “What is now considered ‘market,’ from a fund documents perspective, is a bit in flux. Many institutional investors are still trying to figure out how they want to handle that issue with fund managers,” Richman said. “[LP advisory committees (LPACs)] are coming together to discuss the issue – it is a recurring topic of discussion at annual LPAC meetings as managers begin to roll out their next funds.”

Unfortunately, the lack of legal protections can put intrepid fund managers in a position to push through measures, as needed, to facilitate retailization over institutional investors’ potential objections, Richman noted. “Fund managers may only need consent from a subset of LPs – simple majority, two-thirds majority or whatever threshold the original fund documents specify – to enact practices related to retailization, which may even be achieved through negative consent,” he explained. Further, as some institutional investors are less focused, concerned or knowledgeable about the potential harm from retailization, they may be less inclined to push back on GP requests, he added.

The result is that downstream harm to institutional investors as the retailization movement bounds ahead feels like “fait accompli” to many, Richman asserted. “Although managers may be willing to listen to institutional LPs’ concerns, those investors do not really have any ability to stop it and generally just feel like it is inevitable.”

See “Inherent Obstacles and Promising Pathways to Retailization in the PE Industry” (May 29, 2025).

Future Mitigation Tactics

Although institutional investors may have limited recourse to retrofit risk mitigation measures onto their existing private fund investments, there are a couple of concrete steps they can take as to future investments in the industry.

Hard‑Coded Co‑Investment Allocations

The most concrete way that institutional investors can protect their access to co‑investment opportunities is by hard coding those obligations into the fund documents. “In practice, hard coding means getting contractual comfort up front that some element of co‑investment allocation is going to be maintained,” Richman summarized.

To illustrate the point, Richman offered three hypothetical formulations for how institutional LPs can negotiate mandatory co‑investment allocations in their fund documents. The first formulation is applicable in the narrowest of circumstances, which involve managers where the institutional LP is a principal or anchor investor, he described. In those situations, some institutional LPs will insist on a provision ensuring that a fixed percentage (e.g., 5‑8%) of every deal the fund does is allocated to them as a co‑investment, he explained.

Another approach is for a provision to state that if the GP decides to allocate any portion of a deal to another vehicle (i.e., retail vehicle), then the GP is required to allocate a given percentage of that overage to the institutional LP as a co‑investment, Richman explained. “For a $100 deal, assume the GP allocates $75 to its main fund in accordance with its investment guidelines,” he posited. “If a provision guarantees an institutional investor 10% of any overage as a co‑investment allocation, then they will receive $2.50, and the GP can then allocate the rest however they’d like.”

The third tactic is somewhat similar and is in response to sponsors attempting to reserve the right to allocate a portion of every deal to a retail fund, Richman stated. “Some even attempt to reserve the right to allocate a percentage of every deal to another account managed by the sponsor, which historically may have meant co‑investments but now applies to retail funds too,” he explained. In that situation, institutional investors are pushing for provisions mandating that at least 50% of that allocation to other accounts go to co‑investments for existing LPs, he explained. “If there is a $100 investment and $80 goes to the main fund, then at least $10 of the remainder must go to co‑investments and $10 can be allocated however the GP sees fit (i.e., retail fund).”

See “Key Drivers, Unique Fund Structures and Alternative Approaches to Co‑Investments (Part One of Two)” (Aug. 22, 2024).

Veto Rights in Side Letters

Although seemingly extreme, the primary option available to institutional investors to curb the harm of retailization is to secure veto consent rights in their side letters as to a sponsor’s ability to pursue alternative liquidity, including by expanding into the retail space, Mendez suggested.

“The consent rights could be included as their own standalone protection within a side letter, or through a robust [most favored nation (MFN)] provision that incorporates language about protections related to fees and expenses, liquidity rights and governance oversight – much of which, of course, already exists in today’s side letters,” Mendez explained. “The difference is that institutional investors would need to go through provision by provision, section by section, and ask themselves to what extent those can be impacted by the growth of the business’s retail platform whether any additional protections can be incorporated accordingly.”

Raising such issues when putting a side letter in place is a good way to ascertain “how the manager sees retail shaping those parameters,” and the negotiation process is a way of obtaining “a broader suite of protections, such as MFN clauses, reporting covenants and LPAC seats,” Itri concurred. “Those measures are all, and have always traditionally been, valued by institutional investors, but are becoming even more important as a large portion of funds open to retail investors,” she added.

Examples of those types of provisions are already common, particularly because of how retail investing can change a sponsor’s risk profile, Mendez pointed out. “A large pension plan, sovereign wealth fund or insurance company anchoring a flagship fund or providing strategic capital may have some institutional sensitivity to dilution or brand alignment,” he explained. “If the flagship fund relies on institutional LPs for stability, its reputation and growing its assets under management, then it only seems fair for investors to ask for certain protections in a side letter.”

Requests for such side letter provisions have been increasing in volume, in tandem with the retailization trend, Itri stated. “We are definitely seeing managers negotiate more side letters with institutional investors that contain these types of veto rights,” she affirmed. “It really is about doing your due diligence on the manager and understanding how retail is going to affect their fund structures, governance, investment strategies, liquidity and the like.”

Of course, obtaining those veto rights does not necessarily mean that an institutional investor must de facto use them to bar sponsors from ever accessing retail capital, Richman noted. “You might wield the consent rights to assess the ills of the approach to retail investing that the sponsor envisions, and then try to come up with a targeted approach to that particular concern rather than simply saying, ‘Thou shalt not!’”

See our three-part series on PE-specific side letter provisions: “Industry Trends, Excusal Rights and Placement Agent Representations” (Mar. 19, 2019); “Co‑Investment Rights, LP Advisory Committee Seats and Parallel Funds/AIVs” (Mar. 26, 2019); and “MFN Clauses, Overcall Limitations and Key Person Provisions” (Apr. 2, 2019).

As private fund economics evolve and become more complex, increasingly sophisticated institutional investors are putting more pressure on fund managers to deliver clear, detailed performance reporting. Several industry associations – notably, the Institutional Limited Partners Association (ILPA) for PE, and the National Council of Real Estate Investment Fiduciaries (NCREIF) for real estate – have released reporting templates and standards in an attempt to standardize and enhance the quality of performance reporting delivered to investors. Fund managers are now weighing how to reconcile those templates with increasing demands from institutional investors, while navigating certain regulatory constraints posed, as applicable, by the Marketing Rule.

Those issues were addressed by a panel focused on client reporting for private funds at the CFA Institute’s 29th annual Global Investment Performance Standards (GIPS) Conference. The program was moderated by Ken Robinson, director at the CFA Institute; and featured Jamie Kingsley, data governance and reporting standards director at the NCREIF; Neal Prunier, managing director at ILPA; and Weil partner Christopher Mulligan. This article summarizes the panelists’ insights on the topic and relevant takeaways therefrom.

For coverage of other CFA Institute programs, see our two-part series: “Reconsidering Key Marketing Rule Terminology and Performance Presentation Criteria” (Dec. 14, 2023); and “Parsing the Parameters and Ambiguity of Using Hypothetical Performance Under the Marketing Rule” (Jan. 11, 2024).

Marketing Rule

Relevant Circumstances

Although the Marketing Rule does not apply to communications to investors in a private fund about their position, materials sent to existing investors can transform into advertisements. For example, samples of reporting provided to prospective investors during fundraising may become advertisements. Also, information sent to existing investors about their performance and status in a current PE fund could become an advertisement if it mentions a new hedge fund being launched, he explained. “Sponsors may consider including a disclaimer on client reports to make it clear the reporting is not marketing, although that is an imperfect solution.”

When preparing investor reports, sponsors should pay attention to the SEC’s examination priorities to avoid the additional scrutiny marketing materials often attract, Mulligan noted. In addition, although the SEC’s private fund adviser rules (PFAR) were vacated by the U.S. Court of Appeals for the Fifth Circuit in June 2024, they provide a very useful, consolidated roadmap on how the SEC views a number of disclosure-related issues regarding fund managers, including conflicts of interest and the reporting of fees and expenses. As for investor reporting, the focus is on the disclosure of fees and expenses relating to operating partners and affiliated service providers, he commented.

See “SEC 2026 Examination Priorities Highlight Classic Compliance Issues, Retailization Efforts and AI Oversight” (Jan. 8, 2026).

Scope of “Advertisement”

Whether a communication constitutes an advertisement is a key issue because it determines whether it is subject to the Marketing Rule, Mulligan emphasized. Briefly, “advertisement” is defined in Rule 206(4)‑1(e)(1) as a direct or indirect communication to obtain prospective investors or offer new advisory services. It does not include extemporaneous or live oral communications, which raises issues around the status of talking points or live communications that are subsequently posted to a website, he noted.

See “Impact of the New Marketing Rule: What Constitutes an ‘Advertisement’ and How to Adhere to Principles‑Based Standards (Part One of Two)” (Mar. 23, 2021).

Required filings (e.g., Form ADV and Form PF) – and the information within those filings – are not advertisements, Mulligan continued. A communication that includes hypothetical performance is not an advertisement when it is provided in response to an unsolicited request from a current or prospective client, or in a one-on-one communication. Any endorsement or testimonial that an investment adviser pays for will be an advertisement, he clarified.

Performance Metrics

IRR

Internal rate of return (IRR) remains the most common measure of performance for closed-end funds, whereas open-end funds typically lean toward time-weighted returns, Kingsley noted. Interestingly, the PFAR requirements for open-end funds were already common best practices, so the new measures introduced in the PFAR seemed to be aimed at creating more transparency into closed-end funds, she opined.

A mosaic of data and metrics is increasingly important to LPs, Prunier observed. Other metrics now need to be considered along with IRR, partly because IRR can be mathematically and artificially inflated by subscription credit facilities, which are now held by almost all private funds. “Being able to look at the various metrics is a really important way for LPs to get a true sense of how that particular investment adviser is performing,” he explained.

Historically, it was common practice to show actual net IRR, which took into account the use of subscription credit facilities, while gross IRR was calculated on a cash in/cash out basis at the fund, Mulligan said. Nearly two years ago, however, the SEC issued an FAQ stating that gross and net IRR shown in an advertisement must be calculated using the same methodology and over the same period of time. If leverage is taken into account at the gross level, then it is necessary to describe the impact of the leverage on performance overall. “That was a very controversial FAQ that took the industry considerable time to work through,” he added.

See “Marketing Rule FAQ Clarifies SEC Expectations for Calculating Net and Gross IRR When Using Subscription Credit Facilities” (Apr. 4, 2024).

An FAQ requiring presentation of net and gross performance of each portfolio company at the portfolio level was reversed early in the second Trump administration, and there is some speculation that the FAQ on methodology and timing will also be removed in the future, Mulligan noted. Generally, there seems to be little attention on the issue during exams, possibly because the SEC is considering whether to continue with the current approach. “The industry has already digested and dealt with a lot of these issues, however, so it may not be helpful to reverse course at this stage,” he opined.

“Hot” Metrics

Although IRR is still the most commonly used performance metric, there has been less emphasis on that metric than in the past, Mulligan noted. Instead, there are several “hot” performance metrics and types of performance presentations that fund managers are currently using in private fund reporting, including:

• distributions to paid-in capital (DPI);
• total value to paid-in capital (TVPI);
• extracted performance;
• hypothetical performance across portfolios; and
• related performance.

Whenever a closed-end real estate fund reports IRRs, the reporting standards co‑sponsored by the NCREIF and the Pension Real Estate Association (PREA) (NCREIF‑PREA Reporting Standards) require four multiples to be reported – TVPI, DPI, the residual multiple and the paid-in capital multiple, Kingsley said. “Without those multiples, you don’t get a complete picture of what really is going on,” she commented.

“DPI has taken on greater importance in recent years with the slowdown in distributions that has occurred throughout the private markets, and is something of great interest to LPs as they’re evaluating how to proceed,” Prunier said. LPs are interested in how a GP has returned their investments, which is ideally through natural exits as opposed to using net asset value (NAV) facilities or other more synthetic mechanisms, he added.

On that point, Mulligan pointed out that there has been a notable increase in fund managers using NAV facilities, dividend recaps and other mechanisms to return capital to investors, which raises DPI and TVPI. The SEC is very interested in those topics for a variety of reasons.

See our two-part series: “Growing Use and Misuse of DPI Calculations to Assess Fund Performance” (Jun. 26, 2025); and “Ways That DPI Calculations Can Be Distorted to Mislead LPs” (Jul. 10, 2025).

Extracted Performance

Extracted performance is often used to highlight certain types of investments, Mulligan mentioned. To comply with the Marketing Rule requirements for extracted performance, fund advisers can provide, or offer to provide, the entire portfolio or fund. Pulling out performance from multiple portfolios or funds to create metrics for a new fund is hypothetical performance. For example, a sponsor that is opening a new healthcare fund may pull out healthcare investments from its various funds to show how the new healthcare fund might perform, he explained.

Extracted performance is an important data point for LPs, but they are less concerned about getting net extracted performance whenever gross is shown, Prunier noted. When given a deal-by-deal breakout of performance, LPs look at the gross deal-by-deal information more than relying heavily on net deal-by-deal information, he elaborated.

See “New Marketing Rule FAQs Offer Safe Harbors for Using Extracted Performance and Certain Metrics” (May 1, 2025).

ILPA Industry Guidance

In 2022, ILPA polled its members and found that 55% disagreed that the reporting provided by GPs across fees, expenses and performance offers the necessary level of transparency, Prunier noted. Compared to 2020 results, there was also a significant increase in the percentage of members that considered quarterly reporting for fees, expenses and performance as “must haves” in negotiations.

Currently, LPs must negotiate during the limited partnership agreement process to receive information they consider necessary, Prunier emphasized. If an LP secures that right, it is usually via a side letter. One of the most significant drawbacks to the PFAR being vacated is that LPs must continue to individually negotiate to receive additional transparency related to core matters, which is frustrating and inefficient. “ILPA seeks adoption of a standardized format, such that LPs invested across many different funds can receive the information in a uniform view for further analysis and comparability,” he explained.

ILPA Performance Templates

Background

On January 22, 2025, ILPA released two versions of its new performance template: the gross-up methodology template and the granular methodology template.

ILPA decided to introduce two performance reporting methodologies based on feedback received during the comment period, Prunier noted. In addition to the “granular” methodology template, the “gross-up” methodology template is for GPs that only think about gross performance at the portfolio level and do not necessarily provide granular detail at the time of capital calls. LPs prefer GPs to use the granular method, but they understand why that is not possible in certain cases, for example, when a fund of funds is calling capital on a set quarterly schedule and does not necessarily know what the capital will be used for when called, he said.

The performance templates are intended to be provided on a quarterly basis at post-quarter end to provide LPs with insight into their investments, Prunier said. Realistically, the information is likely to be included in a data room for due diligence or other marketing efforts, so there is some clarification about what data is required on a quarterly basis versus information GPs need to be mindful of including in the template if it is ever used for marketing, he noted.

Gross IRR Calculations

Fund-level gross performance and portfolio-level gross performance will differ slightly because of differences in timing as to how cash flows are managed and the use of fund-level subscription facilities, Prunier noted. Fund-level gross IRR is calculated on the cashflows between the fund and its investors, and is optional in the performance template. The performance template has the capability to provide net performance with and without the impact of subscription credit lines, as well as portfolio-level gross performance based on cashflows from the fund to investments, he assured.

All things being equal, LPs prefer to receive performance data with and without the impact of subscription credit lines at the fund level, and not just rely on portfolio-level gross to provide information without the impact of subscription credit lines, Prunier asserted. Fees and expenses related to subscription credit lines may be the highest charge that LPs see on a quarterly basis – even exceeding management fees.

When creating the performance templates, it became evident that performance with and without the impact of subscription credit lines was often not shown, at least partly, because advisers were unsure how to provide that, Prunier observed. “That’s why we created the mechanism in a standardized fashion in the performance templates using, in some ways, synthetic cashflows, to make it easier to show performance with and without the impact of subscription credit facility draw downs.”

ILPA Reporting Template

Before the PFAR was vacated in 2024, roughly 50 percent of funds in the industry were providing the original 2016 version of the ILPA reporting template to LPs – and that percentage was higher in more recent vintage years, Prunier said. The 2016 reporting template was much less granular, and it was possible to provide information rolled into just one line item for total partnership expenses, he explained.

The updated reporting template contains a number of improvements on the 2016 version, including not allowing information to be aggregated into single line items. By making it mandatory for fund managers to provide breakdowns in key areas, the updated reporting template should create a more standardized experience for LPs, Prunier noted. ILPA’s goal for the updated reporting template (and performance template) is to reach 50‑percent adoption within two or three years, he commented.

GPs that agree to provide the templates should bear in mind that SEC examiners will check that GPs are providing information in the form they agreed to, Mulligan reminded. “Even though that specific reporting is not subject to the Marketing Rule, there are other rules, and that agreement itself sort of creates a binding obligation for the GP.”

See “Key Features and Benefits of ILPA’s Updated Reporting Template and New Performance Template” (Mar. 20, 2025).

NCREIF‑PREA Reporting Standards

Overview

The NCREIF‑PREA Reporting Standards are centered on reporting performance to current investors in closed-end private real estate funds. The standards depend on – and, as applicable, provide additional guidance related to – certain foundational standards, including GIPS, U.S generally accepted accounting principles (GAAP) and uniform standards of professional appraisal practice (USPAP), Kingsley said. For example, GIPS deals with reporting performance to prospective investors, while the GAAP relates to financial reporting and USPAP covers evaluation practices, she added.

The NCREIF‑PREA Reporting Standards have a close relationship with data products, as information with no standards behind it may not be helpful to the recipient, Kingsley said. NCREIF‑PREA Reporting Standards may come first and data products follow, or vice versa, or the two may develop in parallel. For example, NCREIF created a private credit fund aggregate data product at the same time as drafting reporting standards for private credit funds. “We really rely heavily on each other for that work, knowing that it will continue to evolve as those debt products move into indexes and benchmarks,” she mentioned.

Unlike GIPS, compliance with the NCREIF‑PREA Reporting Standards is measured on a fund level rather than at the firm level, Kingsley continued. The required elements must be reported to claim compliance, but there are recommended elements for best practices in certain situations that are encouraged. In addition, the NCREIF‑PREA Reporting Standards do not mandate a specific delivery method. Given that investors, investment managers and consultants have various needs and abilities to send and receive information, users of the information are able to determine the best delivery method for them, she explained.

IRR Hierarchy

The NCREIF‑PREA Reporting Standards created and adopted the “IRR Hierarchy” to provide disclosure around how gross IRR is calculated and to offer better transparency for investors, which is structured as follows:

• Level 1: Gross IRR before investment management fees and fund costs, which can be calculated two ways:
  • Level 1a: IRR reflects cashflow from fund to investment; or
  • Level 1b: IRR reflects cashflow between investors and the fund;
• Level 2: Gross IRR after deducting fund costs but before deducting recurring, transactional and performance-based investment management fees;
• Level 3: Level 2 amount minus ongoing and transactional investment management fees; and
• Level 4: Level 3 amount minus performance-based investment management fees (e.g., carried interest, etc.) – i.e., net IRR.

Levels 1a, 1b and 2 are the preferred methods for reporting gross IRR, Kingsley mentioned.

Level 1a uses fund to investment flows and is unleveraged to the extent those cashflows include cash derived from subscription-level leverage, Kingsley noted. Level 1a is more directly comparable to individual deal or investment IRRs, and managers that report at that level in the IRR hierarchy are often those who are asked for deal-level IRRs, she commented.

Level 1b nets out all forms of leverage used by a fund (i.e., fund-, subscription- and deal-level), Kingsley continued. The impact of “fund costs” are isolated without the other “noise” generated from cashflow timing differences. For both Levels 1a and 1b, the spread between gross and net IRR is fees and fund costs, which aligns with ILPA’s approach. Level 2 is consistent with time-weighted return calculations and allows for compensation comparisons across funds and managers, she explained.

Transparency is the first step toward consistency, and it is possible that private funds will converge toward one approach to reporting IRR as time goes on, Kinglsey commented. Users of the information drive what information is presented – e.g., Level 1a is useful because that is what many private real estate fund managers are asked to provide, she added.

See our two-part series: “Fundamental Flaws of IRR and How Sponsors Can Avoid Distorted Calculations” (Nov. 12, 2019); and “Practical Steps Investors Can Follow to Diligence Flawed IRR Calculations” (Nov. 19, 2019).

Real Estate‑Specific Issues

In the real estate space, the IRR hierarchy in the NCREIF‑PREA Reporting Standards provides a way for fund managers to provide useful information, while also giving investors the information they need to compare various funds, Kingsley noted.

Looking at the differences between PE and private real estate, however, there is an issue in PE about whether fund- or investment-level cashflows should be used when calculating gross IRR at the fund level, Robinson noted. ILPA currently requires net IRR through its performance template but recommends gross IRR at the fund level, he observed. On the real estate side, the NCREIF‑PREA Reporting Standards require both gross and net IRR, but gross IRR can be calculated using fund-level cashflow gross of all expenses or net of non-management expenses (e.g., manager performance fees), or Level 2 gross IRR can be calculated using investment-level cashflows, he summarized.

Another notable point is that multiple on invested capital (MOIC) is a performance metric that is commonly used in the PE industry but not in the real estate industry, Kingsley mentioned. There was some confusion when the PFAR was released because the terms MOIC and TVPI started to be used synonymously. The real estate industry measures performance on three levels - property, investment and fund – and TVPI calculations differ depending upon the level being analyzed. MOIC does not necessarily equate to TVPI, depending on the level being viewed. To address that, cautionary language is included in the NCREIF‑PREA Reporting Standards to ensure that managers consider what should be provided if a request for MOIC is received, she said.

See “How Real Estate Fund Managers Can Navigate Current Liquidity, Valuation and Transparency Challenges” (Jul. 13, 2023); and “Real Estate Fund Sponsors Under the Advisers Act: To Register or Not? That Is the Question” (Mar. 9, 2023).

Although every new administration brings a degree of change, developments at the SEC have been swift and significant following the end of Chair Gary Gensler’s tenure. Chair Paul S. Atkins has indicated that he intends to move away from “ad hoc enforcement” and toward a steadier, more principles-based approach that focuses on the SEC’s core mission. Ultimately, the new SEC will focus on what Atkins refers to as “back to basics” enforcement, which, for the private funds industry, means a focus on cases involving actual harm to investors, among other things.

To explore how leadership changes and new policy directions are reshaping the efforts of the SEC’s Division of Enforcement (Enforcement), as well as the implications for those navigating the evolving regulatory environment, Gibson Dunn hosted a webinar, entitled “The New SEC: New Director and Enforcement.” The panel was moderated by Gibson Dunn partner David Woodcock and featured his partners Jina L. Choi, Osman Nawaz, Tina Samanta and Mark K. Schonfeld. This article offers relevant takeaways from the webinar for private fund managers.

For previous insights from Choi, see “Court Fines Former Apollo Partner $240K for Misallocating Personal Expenses; Places ‘Significant Blame’ on Firm’s Internal Practices” (Jan. 19, 2021); and from Schonfeld, see “Conflicts From Managing Multiple Funds and Other Current Challenges to Effective Compliance at PE Funds” (Nov. 30, 2021).

Overview

It is a time of a major transition at the SEC, and the Commission has signaled a reset, Woodcock remarked. Atkins has indicated that he intends to hold accountable those who lie, cheat and steal via a renewed focus on fraud and manipulation, with less attention to expansive theories of disclosure, control violations and simple negligence, he summarized.

“Chairman Atkins has emphasized that there is a new day at the SEC, and the new SEC will focus on its core mission – protecting investors, ensuring fair markets and fostering capital formation – while bringing what he describes as greater consistency, transparency and due process to Enforcement,” Woodcock said. The stated themes are a stark contrast from the last few years, and the SEC is expected to take a step back from enforcement in areas such as environmental, social and governance (ESG), cybersecurity disclosures and crypto.

“It’s a new leadership team, a recalibrated mission and a different tone at the top,” Woodcock summarized.

Leadership Changes

SEC Chair Paul S. Atkins

Atkins was sworn into office on April 21, 2025. Although significant changes were made to SEC practices and positions on substantive issues under Acting Chairman Mark T. Uyeda, a clearer picture of Atkins’ priorities and views on enforcement are emerging now that he has taken office, Schonfeld observed.

Atkins has stated that he wants to ensure the SEC fulfills its mission in a way that is grounded in its statutory authority from Congress, which contrasts with past Commissions that have pushed the interpretation of statutes and engaged in “regulation by enforcement,” Schonfeld noted. As a result, Enforcement is expected to focus on concrete instances of fraud, where there are demonstrable misrepresentations or fraudulent disclosures and conduct that results in harm to victims, he explained. Atkins has also signaled the SEC’s greater receptivity to the crypto industry, and the issuance of regulations to encourage the industry’s development in the U.S.

See “Assessing the SEC’s Performance During the First Six Months of the Trump Administration” (Aug. 21, 2025).

Director of Enforcement Judge Margaret Ryan

Judge Margaret Ryan was appointed director of Enforcement on September 2, 2025. Notably, when announcing her appointment, Atkins commented that Ryan’s leadership of Enforcement would be guided by Congress’ original intent in enforcing the securities laws, particularly as they relate to fraud and manipulation, Schonfeld said.

It is still early in Ryan’s tenure, and she has not made any public statements that elucidate her visions for Enforcement, Schonfeld continued. Anecdotally, from meetings with defense counsel, Ryan’s process has been described as “judicial” in that she is focused on understanding the factual record and legal issues, whether the SEC can prove a violation and, if so, what remedies are appropriate. That is positive for defense counsel and their clients, who were sometimes frustrated when engaging with prior Commissions that did not necessarily feel constrained by what could be proved so much as motivated by what might be achieved through a settlement, he opined.

“It is a refreshing change,” Schonfeld emphasized. “I think what remains to be seen is how those messages and agendas from the chairman and the director filter down through the many layers of staff to get to the line-level attorneys that fund managers deal with day in and day out in investigations.”

Organizational Structure

Reorganization to Consolidate Direct Reports

Prior to Atkins’ arrival, Uyeda reorganized Enforcement’s leadership structure to improve efficiency, management and oversight, Choi said. In the announcing memorandum that was reportedly issued to staff in early April 2025, Uyeda said that the sheer number of senior officers reporting to the director of Enforcement had created management challenges. The number of direct reports to the director has been consolidated to six:

• deputy directors for:
  • northeast;
  • southeast;
  • west; and
  • specialized units;
• chief counsel; and
• chief litigation counsel.

The new structure is unlikely to affect how investigations are conducted or who conducts them, Choi continued. Staff and their immediate supervisors will still issue document requests and subpoenas for documents and testimony. Staff remain the point of contact for defense counsel on a day-to-day basis, and there will still be an opportunity to escalate.

It is too soon to gauge whether Ryan will retain the new leadership structure, Choi cautioned. There has been a significant change of personnel at the SEC and the federal government generally. There was the “fork in the road” email and VERA – Voluntary Early Retirement Authority - incentives for personnel, especially senior personnel, to move on from the Commission. “Those changes may continue and Ryan may want to get a sense of things before making more changes,” she opined.

Specialized Enforcement Units

Enforcement’s specialized units were announced in 2010 as part of the last major reorganization of the division, Choi noted. Currently, the specialized units include:

• Cyber and Emerging Technologies Unit, which was renamed from Crypto Assets and Cyber Unit;
• Complex Financial Instruments Unit;
• Market Abuse Unit;
• Public Finance Abuse Unit; and
• Asset Management Unit.

See “Six Steps to Address the SEC’s Trump Era Cyber Enforcement Priorities” (May 15, 2025).

An executive order issued at the beginning of the second Trump administration paused investigation and enforcement of the Foreign Corrupt Practice Act (FCPA) by the U.S. Department of Justice, and certain FCPA prosecutions have been dismissed, Choi said. The SEC’s longstanding FCPA chief and deputy chief have retired, and it appears the FCPA Unit no longer exists, as it does not appear on the SEC’s website and no new chiefs have been named, she added.

Shifting Enforcement Priorities

ESG and Digital Assets

The ESG Task Force was disbanded in the summer of 2024, Samanta noted. Over the three years it operated, the ESG Task Force brought two main types of ESG enforcement cases: (1) against public companies alleging misstatements; and (2) against investment advisers as to their investing processes for ESG funds. As ESG investing and ESG funds themselves decline, there will be a natural decrease in related enforcement, she observed.

A sea change is also expected from the new administration’s approach to digital assets and crypto, Samanta said. Atkins has stated that most crypto assets are not securities and has indicated that the SEC will draw clear lines rather than rely on the Howey test - which was articulated in 1946 – as the framework for digital assets. “To that end, Chairman Atkins recently unveiled Project Crypto as a Commission-wide initiative, with the focus on bringing crypto business and innovation back to the U.S.,” she stated.

“Back to Basics” Enforcement

“Back to basics” covers the broader regulatory approach of the SEC, not just Enforcement, Nawaz noted. As Commissioner Hester M. Peirce said in remarks delivered in 2018, “the SEC is not an enforcement agency, but enforcement is an important tool for the SEC.” In more recent speeches, Peirce said that an enforcement philosophy pursuing minor violations with the same vigor as major violations can cause problems, for example, by diverting resources from high-priority areas. The efficient use of resources is relevant now more than ever given the reduction in staff, he added.

For coverage of other remarks by Peirce, see “SEC and CFTC Commissioners Call Out Impossible Standards and Ulterior Motives Driving Off‑Channel Communication Enforcement Efforts” (Nov. 14, 2024).

Enforcement priorities under Atkins – which have been supported by the types of cases brought thus far during his tenure – have been identified as:

• insider trading;
• offering fraud;
• market manipulation;
• accounting fraud;
• protection of retail investors; and
• matters involving genuine harm and bad acts.

The “back to basics” approach will require Enforcement staff to answer key questions, including whether there is any investor harm, and to clearly show the legal elements of a claim and how the SEC will prove them, Nawaz commented. If the staff find they must conduct a detailed analysis or there is some risk around proving any of the straightforward questions, it is likely the case will not fit within a “back to basics” approach. “The catchall is matters that involve genuine harm and bad acts – that really illustrates where the SEC will want to be spending their enforcement resources,” he added.

See “SEC 2026 Examination Priorities Highlight Classic Compliance Issues, Retailization Efforts and AI Oversight” (Jan. 8, 2026).

Cross‑Border Task Force

In early September 2025, the SEC announced the formation of the Cross-Border Task Force within Enforcement to strengthen enforcement efforts against fraud involving foreign-based companies accessing the U.S. capital markets, with a focus on China, Choi said. It is the first and only task force announced during the new administration and reflects where the Commission wants to direct its resources. “It may be an answer to calls from Congress and other stakeholders to scrutinize Chinese companies that are seen as taking advantage of the U.S. capital markets and those gatekeepers who help them,” she observed.

Enforcement has deep and expansive experience investigating cross-border and international cases, including those involving Chinese issuers, advisers and traders, as well as the brokers and auditors who help them, Choi continued. Interestingly, the Commission has been quite active in ordering trading suspensions, generally for offshore issuers whose stocks are believed to be involved in market manipulation. The orders state that suspension is necessary for the public interest and for the protection of investors. Nine trading suspensions were ordered in a six-week period at the end of 2025, which is more than the total ordered in the last three years, she noted.

Voluntary Dismissal of Prior Litigation

Even before Atkins took office, multiple crypto lawsuits were dismissed to facilitate the Commission’s ongoing efforts to reform and renew its regulatory approach to the crypto industry, Nawaz said. There have also been dismissals in other areas, including a dealer case; a liquidity rule case; and a policy and procedure case based on “the specific facts and circumstances of the case.” On balance, the dismissals help pave the way for Atkins’ “new day” and action has been swift, especially in relation to crypto, he added.

Greater Transparency

Wells Process

The Wells process is a procedure where, at the end of an investigation, if the staff has determined that they believe a violation has taken place, the subject of the investigation is given the opportunity to make a written Wells submission (and often attend a meeting) to persuade the staff that an enforcement action should not be pursued, Schonfeld explained. The effectiveness of the Wells process depends on the subject’s understanding of what the staff has gathered as part of the investigative record, and the evidence on which the enforcement action would be based, he noted.

Historically, the level of access to an investigative record that a subject and their counsel is given varies between different SEC offices, and even within an office, Schonfeld continued. Atkins has indicated that, in the absence of exigent reasons (e.g., a parallel criminal investigation), the Wells process should be transparent, and staff should provide access to the record so that the subject can provide meaningful submissions and engage in a useful dialogue about the evidence and merits. In a recent Wells process, the staff were open and provided access to what appeared to be all the transcripts and exhibits, Schonfeld mentioned.

Greater transparency results in a more productive process, Schonfeld continued. The Wells process is particularly valuable for trial counsel at the SEC, who have an important role in helping staff decide on an appropriate outcome and may not have time to examine the record as defense counsel would. Based on Atkins’ pronouncement, defense counsel may now argue that access is the default position and can more easily escalate the issue up the chain, he said.

Along that vein, Atkins has also said that subjects should be given at least four weeks to provide a Wells submission, which is a very welcome development, Samanta added. The staff have still specified the standard two weeks in letters but have accommodated extensions, Schonfeld noted.

See our three-part series on the Wells process: “Origin and Key Elements” (Jun. 15, 2021); “SEC Enforcement Staff Views of the Process” (Jun. 22, 2021); and “The Pre‑Wells Process Versus the Post‑Wells Process” (Jun. 29, 2021).

Consideration of Settlements and Collateral Waivers

One consequence that can flow from settlements or judgments against a party for a violation of the securities laws is the loss of certain exemptions or safe harbors that might otherwise apply, Schonfeld explained. For example, companies with well-known seasoned issuer status can take advantage of a safe harbor for forward-looking statements, but that entitlement may be forfeited if the company is the subject of an enforcement action that results in a finding that the company violated anti-fraud provisions. The Commission can grant exemptions from such disqualifications, but it has historically decided whether to accept a settlement offer and a request for waiver at the same time. As a result, there was a risk that the SEC would accept an offer of settlement that bound the company to a fraud violation settlement without granting a waiver, he said.

The SEC changed the process for a period during the prior Trump administration, and Atkins has returned to that process, Schonfeld commented. Specifically, if a company wants to offer to settle an anti-fraud violation that would trigger a disqualification, the company can request a waiver and the Commission will consider both the settlement offer and waiver request. If the Commission decides to accept settlement but refuses to grant a waiver, the company will be given an opportunity to withdraw the settlement offer. “That is good news for parties that are confronted with settlement decisions, as it will give them greater transparency and predictability about the consequences of a settlement,” he added.

SEC Enforcement Actions

Large Scale Fraud

The SEC’s focus on large scale fraud actions, especially offering frauds, is illustrated by two recent actions that, according to Nawaz, are likely to be emphasized by Enforcement going forward:

1. Raising Money Through Misrepresentations: The SEC filed fraud charges against a New York-based commercial real estate firm and its owner for allegedly using an internet funding platform to obtain more than $52 million from over 700 investors by falsely claiming the funds would be used to purchase or recapitalize two specific deals, but instead using the funds for unrelated projects and other purposes.
2. Misusing Investor Funds: The SEC filed charges against the founder and former CEO of a privately held technology startup for allegedly raising more than $42 million through sales of company stock by making false and misleading statements about the company’s use of artificial intelligence.

The above cases were in Enforcement’s pipeline for some time, but there are likely to be shifts in staff resourcing and more time spent looking for similar large scale fraud actions, Nawaz opined.

Investment Adviser Focus

The SEC’s “back to basics” approach under Atkins is reflected in cases involving investment advisers, with an uptick in disclosure-based fraud and other misconduct cases, Samanta noted. There is also a focus on traditional areas (e.g., conflicts of interest and expense allocations), in addition to allegations of fraud. The cases are consistent with the stated focus on retail investors and individual accountability, with the SEC charging individual representatives, she added.

It is difficult to predict whether the number of investment adviser exams will decrease, but it seems likely they will become more risk-based, Samanta reasoned. “For registered entities such as investment advisers and broker dealers, we think the exam process is likely to present an opportunity to show potential remediation in connection with issues uncovered during an exam, and potentially to avoid an escalation to Enforcement.”

It will be interesting to see if the new administration undertakes any initiatives similar to the prior Trump administration, such as the Retail Task Force or the Share Class Disclosure Initiative, which resulted in charges against 79 investment advisers through a self-reporting process, Samanta said.

See “What to Expect on SEC Examinations Under the New Administration” (Sep. 18, 2025).

Opportunities and Strategies in Navigating an Investigation

There is an opportunity for earlier engagement with SEC staff on the merits of a matter, including from the start of an investigation as the factual record develops and potential legal theories are being considered, Woodcock said. Defense counsel should also look for opportunities for earlier escalation to senior staff, before the Wells process, understanding that there is likely to be only one opportunity to engage with the director, if at all. “Do not wait until the Wells process to engage, because staff are more likely to have firm views by that stage and to feel strongly about their case,” he asserted.

The defense team may also consider being more transparent with the SEC, depending on the facts of the particular investigation, Woodcock continued. Greater transparency from the defense may ameliorate the risk of whistleblowers coming forward in the future and could result in greater cooperation credit from the SEC, he added.

See our two-part series on SEC cooperation credit: “Examining HeadSpin As a Framework for Optimal Remediation Measures” (Jun. 1, 2023); and “Inherent Obstacles to Fund Managers Receiving Full Credit” (Jun. 15, 2023).

From a strategy perspective, arguments should be grounded in the Commission’s priorities (e.g., emphasizing the absence of fraud or investor harm), Woodcock suggested. Although it may be possible to challenge investigations that are inconsistent with the SEC’s stated priorities, that may be risky as staff can easily counter that they are aware of their priorities, he cautioned. “On all these points, don’t expect the staff to necessarily agree with you, but I think making these arguments early and often is probably a good idea.”

In a Wells process, it is reasonable to expect access to the investigative record and more consistency across offices, Woodcock commented. Counsel should request information if they do not have what they need and then be ready to dive in quickly because the investigative record may be voluminous. Four weeks is not a lot of time for a review, he cautioned.

Although the SEC’s current approach seems to be less aggressive than the prior administration, priorities will inevitably shift again, Schonfeld said. “An aggressive Enforcement staff can be somewhat empowering for in-house counsel and the compliance team at an SEC registrant. When the government taps the brakes, however, it can create a mistaken impression that registrants don’t have to worry as much about regulatory oversight.”

It is important to remember that another wave of investigations will eventually come when there is a market correction or change in administration, and those investigations will be focused on what people are doing now, Schonfeld cautioned. The seeds for the next wave of investigations are being sown now and over the next three or so years. Counsel can assist clients by providing support, authority and reasons to maintain the same level of vigilance that was developed over the preceding years, he offered.

“The statute of limitations for violations is very long – at least five years – and so anything that anybody is doing now will be the subject of investigations in the next administration at the latest, let alone what can happen if there’s a major market correction,” Schonfeld emphasized. “There are still things to be concerned about, and still reasons to keep your eyes focused on the target.”

See “SEC Examinations and Enforcement Staff Warn Against Certain Private Credit Practices, Fee and Expense Conflicts (Part Two of Two)” (Feb. 20, 2025).

The role of fund administrators has received increased attention in recent years in the aftermath of the Bernie Madoff Ponzi scandal, which highlighted the need for heightened probity and more efficient and sophisticated data analysis with regard to inflows and outflows of cash from private funds; the allocation of fees and expenses; and the reconciliation of accounts both internally and externally. But even now, the role of administrators is not understood nearly as well as it could be in the private funds space and beyond. Moreover, some fund managers lack a keen sense of what to look for and what questions to ask when vetting administrators as potential partners, and they may not grasp how critical the automation of recordkeeping processes is to an administrator’s ability to carry out its tasks efficiently, as well as the importance of the full disclosure of that technological ability to the manager.

All those themes were discussed in a Manhattan Alternative Investment Network webinar entitled, “Is Your Fund Administrator Meeting All Your Needs?” This article summarizes key takeaways from the webinar, which featured Robert Ansell, director of business development at Opus Fund Services, and moderator Daniel P. McGuire, partner at Citrin Cooperman Advisors LLC.

See “Amount of Value Outsourced Fund Administrators Confer to PE Sponsors and Criteria for Selecting Them” (Jan. 25, 2022).

Taking On an Administrator

Vetting the Service Provider

For fund managers, the benefits of working with an administrator can be substantial, but if they want a relationship that will last, then they must conduct a deep, holistic review of any prospective service provider. Taking on an administrator necessarily involves extensive due diligence.

“The more thorough that the manager is at the beginning, then, obviously, the better,” Ansell said. “You’ve got to factor in price, service, technology, location, reputation, ownership, strategy – all of these things are important,” and managers that initially just focused on one factor are the ones most likely to switch.

The vetting of various administrators should involve members of the fund manager’s business development, accounting and client services teams, Ansell explained. As part of that process, the fund manager must become familiar with the portals through which the administrator receives and processes information from the manager and the fund’s investors. But the diligence needs to go further and specifically address the administrator’s technological resources and capabilities, he added.

See “Features of a Robust Program for Onboarding Third Parties and Pitfalls to Avoid” (Dec. 14, 2021); and “The Importance of Exercising Due Diligence When Hiring Auditors and Other Vendors” (Jun. 21, 2018).

Verifying the Administrator’s Claims

Effective due diligence requires obtaining proof of the administrator’s claims about its technology and overall approach. “It’s not just about what the administrator wants to show you. It’s more about ‘Okay, prove it to me! Prove that the technology and the automated processes work,’” Ansell summarized.

Taking a direct hands-on approach that requires an administrator to demonstrate the functionality and reliability of its automated processes is critical for rooting out instances of what some people have dubbed “vaporware,” continued Ansell. He defined vaporware as a purportedly up-to-date technology that a vendor or prospective counterparty shows off, “and it looks great. It’s shiny. It’s beautiful, but then when you actually try to use it, it doesn’t really exist.”

The dangers make it necessary for a fund manager conducting due diligence to “go behind the scenes” and ask probing questions about the technology the administrator will use to keep track of inflows, outflows, asset valuations, net asset value (NAV), fund performance and other critical data that may be subject to daily or even more frequent changes, advised Ansell.

Managers should obtain answers to the following questions in the course of due diligence and with a view to understanding how automated the administrator’s processes are overall:

• Does the administrator use fragmented data models or a single database?
• Does it use spreadsheet workarounds or systematic controls?
• Does it use copy-and-paste data transfers or straight-through-processing workflows?
• Does it follow manual processes to troubleshoot problems or apply digital solutions and then subject the work to review by humans?

It is imperative for administrators to be totally forthcoming about all of the above points – and they should volunteer the information so readily that the manager does not even have to ask, Ansell observed. “As a manager, it’s not just about seeing my NAV statements, my reporting, my balance sheet, my income statement and my treasury controls,” he said. “I want to know how it’s being done. Who’s doing it? What are the processes? What are the controls? What are the technologies? What’s the automation?”

Ideally, a manager will have gotten detailed answers to the above questions before entering into a business relationship with an administrator. However, all too often, the reality is that no one asked the questions at the appropriate time, Ansell acknowledged. If managers go to their administrators seeking answers after the start of the relationship, they may be startled to find that the high-tech automated processes that were supposedly in place are ineffective at best and nonexistent at worst.

“Behind the scenes, there are loads of manual workarounds. There are loads of spreadsheets. Wherever there are problems, the administrators are just throwing more people at it. The automation that the manager was told was there isn’t really there,” Ansell lamented.

See “Managing Risks Associated With Outsourcing” (Nov. 2, 2023).

Engaging With the Administrator Regularly

Having carried out all proper and necessary due diligence, a manager should enter into a relationship with an administrator based on proactive engagement and mutual responsiveness, Ansell said, noting that his firm’s client services team touches base at least once a month with every manager with which it works.

“My advice is to engage. When the administrator calls you, don’t just brush them off. Don’t just say, ‘Oh, everything’s good,’” Ansell recommended. “Tell the administrator what you’re up to. Tell them about potential or expected changes in strategy, structure, people, investments and investors. Take the time to give the administrators a heads-up” about current and upcoming priorities for the next quarter or the next year, he urged.

If the administrator is doing its job right, that information will not sit idly but will be recorded and shared with the appropriate divisions, continued Ansell. Managers are well-advised to schedule monthly check-in meetings with their administrators, he stressed. Doing so can help avoid situations in which key people are in the dark about crucial operational and strategic aspects of a fund until it is too late for their involvement to be of any use.

Sometimes, a fund manager might have many meetings internally to discuss adding a payment entity, changing strategy for an existing fund or setting up a new fund, Ansell noted. You might have all these conversations and then, only at the last minute, bring the administrator in, at which point your thoughts are quite evolved, you’re ready to get moving, but everyone is playing catch-up with you. “So the earlier you engage, the better,” he advised.

Switching Administrators

Ideally, managers will enter into relationships with administrators that will work out well for both parties – so well that neither of them will want to part ways, Ansell said. But circumstances can and do arise when it makes sense to move on from the relationship and find a new counterparty. Nevertheless, before managers ever reach such a juncture, they must carefully weigh whether it is appropriate to make a move.

If a manager does decide to switch administrators, Ansell recommended that it do the following:

• review, approve and sign the new services agreement with the new administrator;
• upload all incorporation, compliance and other legal documents to the new administrator;
• update subscription documents and private placement memoranda to reflect the change of administrator; and
• alert investors of the change, explaining the operational benefits to the fund.

Avoiding a Shakeup

If a fund has grown considerably over five years or longer, its size and strategy are unlikely to have much resemblance to when it started out, McGuire noted. With such evolution often comes the urge to renegotiate fees, side letters, and other fund features and relationships. However, as a general rule, managers should not contemplate making such a change in the midst of an audit or tax season, Ansell argued.

In addition to operational benefits, regular and intensive meetings and data sharing between a manager and administrator can help curb or eliminate the need to replace an administrator, Ansell emphasized. The trust that often develops when working closely together over time can be vital to successfully navigating changes that – in the absence of a collaborative relationship – might make the manager feel that there is no choice but to go in search of a different entity, he asserted.

Ideally, relationships between managers and administrators will continue and flourish for the best of reasons. But the reality is that, sometimes, it comes down to sheer inertia on the part of the manager, Ansell conceded. Transferring investor information, compliance documents, anti-money laundering records and fund accounting data from one outside service provider to another is no small endeavor, he explained.

Hence, the feelings of frustration that may arise after managers undergo an audit – and that may drive them to think about shaking up existing arrangements – often subside in the face of the sheer number of logistical tasks that moving to a different administrator would entail, Ansell said, illustrating his point with an analogy. “You might hate your bank, but people so rarely change their bank account. They just can’t be bothered to do it. They think it’s too much work, so they just suck it up and deal with” the existing arrangement, he commented.

Heeding Red Flags

For all the care that managers should take to get off on the right foot and maintain healthy and mutually beneficial relationships with their administrators, Ansell and McGuire both acknowledged that there are red flags that should alert a manager when the relationship is no longer working out.

Being Less Responsive

One example of a red flag is when an administrator becomes less responsive. “If you’re a manager and you see that responsiveness just falls away, then that clearly shows you that the administrator has deprioritized you,” Ansell said. Although administrators’ responsiveness is crucial, preserving the relationship also means that the manager must have realistic expectations of the administrators it works with and avoid putting undue pressure on them, he added. “It works against a manager if you squeeze your administrator from the very beginning on price, on service, on everything, so that there’s nothing left to give, there’s no room to help,” he cautioned. “As a manager, you might want to feel like you’re getting the best deal on everything, but just be mindful that there’s a chance that could backfire.”

Sidelining the Manager

Another sign that it may be time to move on is when an administrator shows an unwillingness to change to resolve issues that come up, continued Ansell. “If you’re the manager, and you’re getting negative responses – ‘No, we can’t do that, or we can do it but it’s going to cost a fortune’ – you can sense that the administrator just isn’t really there to solve issues for you anymore,” he said. “That shows that your [level of] priority within the administrator has shifted, and it’s time for you to start looking elsewhere.”

Such realignments of administrators’ priorities are only to be expected given the nature of the market, Ansell acknowledged. Changes to funds’ profiles and assets under management will inevitably entail shifts in the behavior of their counterparties. “We often see that the multi-billion-dollar funds are getting bigger. They’re attracting the lion’s share of the capital, and they’re the ones that are doing the most new launches,” he observed. “So if you are the administrator to one of those funds, you’re just going to allocate the most resources to them, because your fees are in the multi-millions [of dollars]. It just makes common sense.”

“This isn’t controversial. No one’s upset by it. It just leaves a lot of managers feeling neglected, feeling like they’re just a number,” Ansell added. He gave the example of a fund manager that managed assets well into the multi-billion-dollar range, yet came to feel that it had been sidelined by its administrator. “It was upset, but, to a degree, it could understand that, even though it is big, there are a lot of funds that are bigger and are getting the A-teams,” he recalled. “We’ve also seen a lot of managers in the $250 million to $500 million range saying to us, ‘You know what? We’re not even getting the B teams now; we’re getting the C and the D teams.’ So there’s a lot of frustration there.”

Such market realignments have contributed to a trend in which large, well-established funds that have grown frustrated with a lack of service and attention from their administrators, in spite of paying hefty fees, have gone out in search of new arrangements, concluded Ansell.

In other cases, however, regardless of the level of solicitude they were getting, funds have simply grown discouraged with the lack of technical sophistication and resources that their administrators brought to the table and decided to move on.

Handling “Offshore Creep”

Yet another factor that has driven some fund managers to seek out different arrangements is what they have come to view as an overconcentration of services in the offshore sector, Ansell observed. “As administrators, you’ve got to strike the right balance between how much you’re doing onshore versus how much you’re doing offshore,” he commented. “There’s a certain amount of offshore connectivity and reliance that managers are okay with, but managers have moved to us because they specifically don’t want ‘offshore creep.’”

See “SEC Order Warns Fund ‘Gatekeepers’ That They Remain a Focus of SEC Scrutiny” (Feb. 8, 2018).

Akerman has welcomed Christopher Mendez as a partner in the firm’s corporate practice group and chair of its investment funds practice in New York. He focuses on alternative investments and the broader investment management industry, including advising on complex fund formations, fund-related transactions, SEC examinations and enforcement actions.

For insights from Mendez, see our three-part series on PE spinouts: “Key Catalysts Behind the Emerging Trend” (Oct. 30, 2025); “Non‑Solicitation Clauses, Track Record Portability and Other Obstacles” (Nov. 13, 2025); and “Economic and Operational Terms and Subsequent Challenges” (Dec. 11, 2025).

Mendez advises global and U.S.‑based investment advisers on the launch and management of complex fund platforms spanning PE, private credit, hedge fund and real estate strategies, as well as transactional and regulatory matters across the alternative investment landscape. He guides clients through the formation and structuring of a wide range of investment vehicles, including open- and closed-end, drawdown, evergreen and series fund structures, as well as bespoke co‑investments, joint ventures and managed accounts. He also navigates the intricacies of fund-related transactions, including LP- and GP‑led secondaries; fund restructurings and continuation vehicles; seeding and anchor investments; spinouts; lift-outs; and investment management M&A.

See our two-part series on co‑investments: “Key Drivers, Unique Fund Structures and Alternative Approaches” (Aug. 22, 2024); and “Offering Process, Key Fund Terms and Regulatory Considerations” (Sep. 5, 2024).

In addition, Mendez provides strategic counsel on SEC, CFTC and National Futures Association compliance, including the Investment Advisers Act of 1940; the Investment Company Act of 1940; and related regulatory filings and governance matters. He has significant experience managing legal and compliance teams; building compliance programs; and leading clients through SEC examinations and enforcement matters.

See “What to Expect on SEC Examinations Under the New Administration” (Sep. 18, 2025).

Mendez most recently served as senior counsel at Crowell & Moring, and previously held the roles of GC and CCO at Commonwealth Asset Management and Semper Capital Management.