With more than $18 trillion in gross assets, private funds and their advisers play an important role in our financial

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FACT SHEET
Private Fund
Proposed Reforms

U.S. SECURITIES AND EXCHANGE COMMISSION  PAGE 1 OF 2

Why This Matters
With more than $18 trillion in gross assets, private funds and their advisers play an important role in our financial
markets and the lives of everyday Americans. Some of the largest private fund investors include state, municipal,
and private pension plans that provide retirement and other benefits to the American public.
Based on the SEC’s experience overseeing private fund advisers and the sector’s impact on our financial system,
our economy, and American investors’ savings, there is a need to enhance the regulation of private fund advisers.
The  proposed  reforms  are  designed  to  protect  private  fund  investors  by  increasing  their visibility  into  certain
practices, establishing requirements to address practices that have the potential to lead to investor harm, and
prohibiting adviser activity that is contrary to the public interest and the protection of investors.

What this Proposal Would Do
Quarterly Statement Rule
The proposal would require registered private fund advisers to distribute a quarterly statement to private fund
investors with a detailed accounting of all fees and expenses paid by the private fund during the reporting period.
In  addition,  the  statement  would  disclose  information  regarding  compensation  or  other  amounts  paid  by  the
private fund’s portfolio investments to the adviser or any of its related persons.
The proposal also would require advisers to provide information regarding the private fund’s performance. For
liquid funds, the quarterly statement would provide annual net total returns since inception, average annual net
total returns over prescribed time periods, and quarterly net total returns for the current calendar year. For illiquid
funds, the statement would provide the gross and net internal rate of return and gross and net multiple of invested
capital  for  the  illiquid  fund  to  capture  performance  from  the  fund’s  inception  through  the  end  of  the  current
calendar quarter.

The Securities and Exchange Commission proposed new rules and amendments under the Investment Advisers Act
of 1940 (Advisers Act) to enhance the regulation of private fund advisers. The proposed new rules would:
● Require private fund advisers registered with the Commission to provide investors with quarterly statements
detailing information about private fund performance, fees, and expenses;
● Require registered private fund advisers to obtain an annual audit for each private fund and cause the private
fund’s auditor to notify the SEC upon certain events;
● Require  registered  private  fund  advisers,  in  connection  with  an  adviser-led  secondary  transaction,  to
distribute to investors a fairness opinion and a written summary of certain material business relationships
between the adviser and the opinion provider;
● Prohibit all private fund advisers, including those that are not registered, from engaging in certain activities
and practices that are contrary to the public interest and the protection of investors; and
● Prohibit all private fund advisers from providing certain types of preferential treatment that have a material
negative  effect  on  other  investors,  while  also  prohibiting  all  other  types  of  preferential  treatment  unless
disclosed to current and prospective investors.
Additionally, the SEC is proposing to require all registered advisers, including those that do not advise private funds,
to document the annual review of their compliance policies and procedures in writing.

FACT SHEET | Private Fund Proposed Reforms

U.S. SECURITIES AND EXCHANGE COMMISSION  Page 2 of 2
The proposal is designed to improve the quality of information provided to fund investors and allow them to better
assess, monitor, and compare their private fund investments.
Private Fund Audit Rule
The proposal would require registered private fund advisers to cause the private funds they advise to undergo a
financial statement audit at least annually and upon liquidation. The proposal would require the audited financial
statements to be distributed to investors promptly after the completion of the audit. These audits would provide
an  important  check  on  the  adviser’s  valuation  of  private  fund  assets,  which  often  serve  as  the  basis  for  the
calculation of the adviser’s fees, and protect private fund investors against misappropriation of fund assets.
Adviser-Led Secondaries Rule
The proposal would require a registered private fund adviser to obtain a fairness opinion in connection with an
adviser-led secondary transaction. In these transactions, advisers often offer existing fund investors the option
to sell or exchange their interests in the private fund for interests in another vehicle advised by the adviser.  An
independent opinion provider would opine on the fairness of the price being offered to the private fund for any
assets being sold as part of the transaction. The proposal also would require the adviser to prepare and distribute
to the private fund investors a summary of any material business relationships the independent opinion provider
has or has had within the past two years with the adviser or any of its related persons. This requirement would
provide a check against an adviser’s conflicts of interest in structuring and leading a transaction from which it
may stand to profit at the expense of private fund investors.
Prohibited Activities Rule
The proposal would prohibit all private fund advisers from engaging in certain activities and practices that are
contrary to the public interest and the protection of investors. These practices include:
● Charging  certain  fees  and  expenses  to  a  private  fund  or  its  portfolio  investments,  such  as  fees  for
unperformed services (e.g., accelerated monitoring fees) and fees associated with an examination or
investigation of the adviser;
● Seeking reimbursement, indemnification, exculpation, or limitation of its liability for certain activity;
● Reducing the amount of an adviser clawback by the amount of certain taxes;
● Charging fees or expenses related to a portfolio investment on a non-pro rata basis; and
● Borrowing or receiving an extension of credit from a private fund client.
Prohibiting these practices would address conflicts of interest that could reasonably lead to fraud and investor
harm because they incentivize an adviser to place its interests ahead of the private fund’s interests.
Preferential Treatment Rule
The  proposal  would  prohibit  all  private  fund  advisers  from  providing  preferential  terms  to  certain  investors
regarding redemptions from the fund or information about portfolio holdings or exposures. It also would prohibit
all private fund advisers from providing other preferential treatment unless disclosed to current and prospective
investors.  This  proposal  is  designed  to  protect  investors  by  prohibiting  specific  types  of  preferential  treatment
that have a material, negative effect on other investors.
Books and Records Rule Amendments
The proposal includes amendments to the books and records rule under the Advisers Act that require advisers
to retain records related to the proposed rules. The amendments would facilitate the SEC’s ability to assess an
adviser’s compliance with the proposed rules.
Compliance Rule Amendments
The  proposal  includes  amendments  to  the  compliance  rule  under  the  Advisers  Act  that  require  all  registered
advisers, including those that do not advise private funds, to document their annual review in writing.

Additional Information:
The public comment period will remain open for 60 days following publication of the proposing release on the SEC’s website or 30 days following
publication of the proposing release in the Federal Register, whichever period is longer.

FACT SHEET 
Private Fund 
Proposed Reforms 

 

U.S. SECURITIES AND EXCHANGE COMMISSION  PAGE 1 OF 2 

 

 
Why This Matters 
With more than $18 trillion in gross assets, private funds and their advisers play an important role in our financial 
markets and the lives of everyday Americans. Some of the largest private fund investors include state, municipal, 
and private pension plans that provide retirement and other benefits to the American public. 

Based on the SEC’s experience overseeing private fund advisers and the sector’s impact on our financial system, 
our economy, and American investors’ savings, there is a need to enhance the regulation of private fund advisers. 
The proposed reforms are designed to protect private fund investors by increasing their visibility into certain 
practices, establishing requirements to address practices that have the potential to lead to investor harm, and 
prohibiting adviser activity that is contrary to the public interest and the protection of investors. 

 

What this Proposal Would Do 
Quarterly Statement Rule 

The proposal would require registered private fund advisers to distribute a quarterly statement to private fund 
investors with a detailed accounting of all fees and expenses paid by the private fund during the reporting period. 
In addition, the statement would disclose information regarding compensation or other amounts paid by the 
private fund’s portfolio investments to the adviser or any of its related persons. 

The proposal also would require advisers to provide information regarding the private fund’s performance. For 
liquid funds, the quarterly statement would provide annual net total returns since inception, average annual net 
total returns over prescribed time periods, and quarterly net total returns for the current calendar year. For illiquid 
funds, the statement would provide the gross and net internal rate of return and gross and net multiple of invested 
capital for the illiquid fund to capture performance from the fund’s inception through the end of the current 
calendar quarter.  

 
The Securities and Exchange Commission proposed new rules and amendments under the Investment Advisers Act 
of 1940 (Advisers Act) to enhance the regulation of private fund advisers. The proposed new rules would:  

● Require private fund advisers registered with the Commission to provide investors with quarterly statements 
detailing information about private fund performance, fees, and expenses; 

● Require registered private fund advisers to obtain an annual audit for each private fund and cause the private 
fund’s auditor to notify the SEC upon certain events; 

● Require registered private fund advisers, in connection with an adviser-led secondary transaction, to 
distribute to investors a fairness opinion and a written summary of certain material business relationships 
between the adviser and the opinion provider; 

● Prohibit all private fund advisers, including those that are not registered, from engaging in certain activities 
and practices that are contrary to the public interest and the protection of investors; and 

● Prohibit all private fund advisers from providing certain types of preferential treatment that have a material 
negative effect on other investors, while also prohibiting all other types of preferential treatment unless 
disclosed to current and prospective investors. 

Additionally, the SEC is proposing to require all registered advisers, including those that do not advise private funds, 
to document the annual review of their compliance policies and procedures in writing. 

 



FACT SHEET | Private Fund Proposed Reforms 
 

U.S. SECURITIES AND EXCHANGE COMMISSION  Page 2 of 2 

The proposal is designed to improve the quality of information provided to fund investors and allow them to better 
assess, monitor, and compare their private fund investments. 

Private Fund Audit Rule 

The proposal would require registered private fund advisers to cause the private funds they advise to undergo a 
financial statement audit at least annually and upon liquidation. The proposal would require the audited financial 
statements to be distributed to investors promptly after the completion of the audit. These audits would provide 
an important check on the adviser’s valuation of private fund assets, which often serve as the basis for the 
calculation of the adviser’s fees, and protect private fund investors against misappropriation of fund assets. 

Adviser-Led Secondaries Rule 

The proposal would require a registered private fund adviser to obtain a fairness opinion in connection with an 
adviser-led secondary transaction. In these transactions, advisers often offer existing fund investors the option 
to sell or exchange their interests in the private fund for interests in another vehicle advised by the adviser.  An 
independent opinion provider would opine on the fairness of the price being offered to the private fund for any 
assets being sold as part of the transaction. The proposal also would require the adviser to prepare and distribute 
to the private fund investors a summary of any material business relationships the independent opinion provider 
has or has had within the past two years with the adviser or any of its related persons. This requirement would 
provide a check against an adviser’s conflicts of interest in structuring and leading a transaction from which it 
may stand to profit at the expense of private fund investors.  

Prohibited Activities Rule 

The proposal would prohibit all private fund advisers from engaging in certain activities and practices that are 
contrary to the public interest and the protection of investors. These practices include:  

● Charging certain fees and expenses to a private fund or its portfolio investments, such as fees for 
unperformed services (e.g., accelerated monitoring fees) and fees associated with an examination or 
investigation of the adviser;  

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

Prohibiting these practices would address conflicts of interest that could reasonably lead to fraud and investor 
harm because they incentivize an adviser to place its interests ahead of the private fund’s interests. 

Preferential Treatment Rule 

The proposal would prohibit all private fund advisers from providing preferential terms to certain investors 
regarding redemptions from the fund or information about portfolio holdings or exposures. It also would prohibit 
all private fund advisers from providing other preferential treatment unless disclosed to current and prospective 
investors. This proposal is designed to protect investors by prohibiting specific types of preferential treatment 
that have a material, negative effect on other investors. 

Books and Records Rule Amendments 

The proposal includes amendments to the books and records rule under the Advisers Act that require advisers 
to retain records related to the proposed rules. The amendments would facilitate the SEC’s ability to assess an 
adviser’s compliance with the proposed rules. 

Compliance Rule Amendments 

The proposal includes amendments to the compliance rule under the Advisers Act that require all registered 
advisers, including those that do not advise private funds, to document their annual review in writing. 

 

Additional Information: 

The public comment period will remain open for 60 days following publication of the proposing release on the SEC’s website or 30 days following 
publication of the proposing release in the Federal Register, whichever period is longer. 


	Why This Matters
	What this Proposal Would Do
	Additional Information: