The proposed new rules and amendments would 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;
• 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; and
• private fund advisers registered with the SEC to provide investors with quarterly statements detailing information about private fund performance, fees, and expenses.

The SEC is also proposing two amendments to the Advisers Act compliance rule, which would affect all registered investment advisers, to enhance the staff’s ability to conduct examinations. Additionally, the SEC is proposing corresponding amendments to the Advisers Act books and records rule to both assist its examination staff and facilitate compliance with the proposed new rules.

Should the proposed rules and amendments be approved, all private fund advisers would be prohibited from: (1) engaging
in certain activities and practices that are contrary to the public interest and the protection of investors (including those that are
not registered); (2) 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, and (3) providing preferential treatment to certain investors in a private fund, unless the adviser discloses such
treatment to other current and prospective investors.

More specifically, the rules would prohibit all private fund advisers from engaging in the following practices: 

• borrowing or receiving an extension of credit from a private fund client;
• charging certain fees and expenses to a private fund or its portfolio investments, such as fees for unperformed services (for example, accelerated monitoring fees) and fees associated with an examination or investigation of the adviser;
• charging fees or expenses related to a portfolio investment on a non-pro rata basis;
• reducing the amount of an adviser clawback by the amount of certain taxes; and
• seeking reimbursement, indemnification, exculpation, or limitation of its liability for certain activity.

Interested parties may submit comments related to the proposal. Refer to the rule proposal on the SEC’s website for more information on the proposal’s comment period and instructions on how to respond.

For more information, contact Christine Schleppegrell, Senior Counsel, Investment Adviser Rulemaking Office at (202) 551- 6787. Further information on the proposed new rules and amendments is available on the SEC’s Private Fund Proposed Reforms fact sheet on sec.gov.

Source:

SEC Proposes to Enhance Private Fund Investor Protection (sec.gov)