Vacation of SEC's Private Fund Adviser Rules: Navigating the Uncertain Future of Reporting and Compliance Obligations

Description

On June 5, 2024, the Fifth Circuit in Nat'l Assoc. of Private Fund Mgrs. v. SEC vacated the new Private Fund Adviser Rules adopted by the SEC in August 2023 with a compliance date of September 2024. The rules made significant changes to the business, operations, and practices of private fund advisers and the ruling in this case is considered a big win for the private funds industry.

The rules would have applied to both U.S. and non-U.S. fund managers and they covered fee and expense allocations, general partner clawbacks, preferential treatment, adviser-led secondaries, and reporting. The rules also created a general exception for securitized asset funds.

Although the rules will not go into effect, the principles underlying the rules may continue to impact the private fund industry. For instance, the issues presented in the rules will likely continue to appear in deficiency letters and enforcement proceedings. Also, some investors had already negotiated to receive certain benefits and contractual rights based on the rules in side letters and through other arrangements, and some private fund advisers have adjusted their procedures and market approaches in anticipation of the rules. Counsel advising private fund advisers need to understand the implications of the court's decision and the vacated rules in order to advise their clients on compliance and disclosure practices going forward.

Listen as our authoritative panel discusses the court's decision and the potential lasting impact the vacated rules may have on private fund advisers' internal operations, external reporting, and interactions with fund investors.