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Preparing for New Private Fund Adviser Rules: A Guide for SEC Compliance

The U.S. Securities and Exchange Commission (SEC) implemented a substantial regulatory amendment on August 24, 2023 that directly affects private fund advisers. The new Private Fund Adviser rules focus on improving transparency and ensuring the protection of investor interests. Some of the most noteworthy changes include the Adviser-led Secondaries Rule and the Annual Audits Rule as well as an important amendment to compliance review documentation requirements, further enhancing their impact on the industry.

A Paradigm Shift in Adviser-led Secondary Transactions

The SEC’s new Rule 211(h)(2)-2 has significantly transformed adviser-led secondary transactions, which give investors the option to sell or convert fund interests. Now, private fund advisers must obtain an independent fair valuation before the secondary transaction can occur. This new rule is designed to uphold fairness and transparency in secondaries as well as reinforce investor confidence. Additionally, the rule emphasizes the importance of private fund advisers disclosing any material business relationships with fair valuation providers, ensuring a transparent view of any and all potential conflicts of interest.

Augmented Transparency in Annual Fund Audits

Under Rule 206(4)-10, the SEC mandates that SEC-registered private fund advisers procure annual and liquidation audits of private funds, with the exception of securitized asset funds. This departure from previous practices aligns audit requirements with those of the 40 Act custody rule and eliminates surprise audits. This rule change underscores the SEC’s commitment to financial integrity, ensuring that fund operations undergo regular and rigorous reviews. Moreover, the SEC’s flexibility in balancing unforeseen circumstances with audit deadlines demonstrates a highly pragmatic approach to enforcement.

Enhanced Compliance Review Documentation

An amendment to Rule 206(4)-7 has heightened the standards for documenting compliance reviews. Under the amendment, SEC-registered private fund advisers are must provide more rigorous documentation of the adequacy and effectiveness of compliance policies and procedures. This amendment aims to cultivate a culture of continuous improvement and accountability within the private fund advisory sector, preparing firms for closer scrutiny during SEC examinations.

Quarterly Transparency Investor Reporting

In addition to these three significant changes, the Quarterly Reporting Adviser Rule further underscores the importance of accountability and transparency. Specifically, this rule requires private fund advisers to provide investors with quarterly information about adviser compensation, fund fees, expenses, and performance data.

Prepare for Regulatory Changes with Guidance from IVP

In light of the SEC extending compliance timelines for these rules into 2025, it is imperative for private fund advisers to begin preparations. The intricate nature of these rules poses a significant compliance burden, emphasizing the need for careful strategic planning and assistance from outside experts. Compliance consulting, service outsourcing, and regulatory technology could all play an invaluable role in navigating this complex regulatory environment.

In other words, complying with SEC Private Fund Adviser rules will require a holistic approach, one that encompasses everything from readiness assessments to project planning.

Along the way, the IVP Regulatory Reporting Solution can help accelerate compliance readiness with the power of automation. Learn more right now about how the IVP Regulatory Reporting Solution can help your firm prepare to comply with the new Private Fund Adviser rules or contact us at to schedule an online demo.

Regulatory Reporting

Maximize regulatory reporting efficiency with automation. This solution handles regulatory filings, manages threshold breach disclosures, and integrates seamlessly with enterprise systems and fund admins.

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