FACT SHEET

Private Fund Adviser

Reforms: Final Rules

U.S. SECURITIES AND EXCHANGE COMMISSION PAGE 1 OF 3

Why this Matters

Private funds and their advisers play an important role in our financial markets, and 

investment advisers’ private fund assets under management have steadily increased over 

the past decade. Private funds and their advisers also play an increasingly important role in 

the lives of millions of Americans. Individuals have indirect exposure to private funds through 

their participation in public and private pension plans, endowments, foundations, and certain 

other retirement plans.

The Commission is adopting carefully tailored rules to address certain practices that may 

impose significant risks and harms on investors and private funds. The reforms are designed 

to protect those who directly or indirectly invest in private funds by increasing visibility into 

certain practices, establishing requirements to address practices that have the potential to 

lead to investor harm, and prohibiting or restricting adviser activity that is contrary to the 

public interest and the protection of investors.

The Securities and Exchange Commission adopted new rules and amendments under the 

Investment Advisers Act of 1940 (Advisers Act) to enhance the regulation of private fund 

advisers. The new rules require private fund advisers registered with the Commission to: 

● Provide investors with quarterly statements detailing information regarding private fund 

performance, fees, and expenses;

● Obtain an annual audit for each private fund; and

● Obtain a fairness opinion or valuation opinion in connection with an adviser-led 

secondary transaction.

The new rules require that all private fund advisers:

● Prohibit engaging in certain activities and practices that are contrary to the public interest 

and the protection of investors unless they provide certain disclosures to investors, and 

in some cases, receive investor consent; and

● Prohibit providing certain types of preferential treatment that have a material negative 

effect on other investors and prohibit other types of preferential treatment unless 

disclosed to current and prospective investors.

Additionally, the amendments will require all registered advisers, including those that do not 

advise private funds, to document in writing the annual review of their compliance policies and 

procedures.
FACT SHEET | Private Fund Adviser Reforms: Final Rules

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What’s Required

For Registered Private Fund Advisers:

Quarterly Statement Rule. The reforms require registered private fund advisers to distribute 

a quarterly statement to private fund investors. The statement must disclose fund-level 

information regarding performance, the cost of investing in the private fund, fees and 

expenses paid by the private fund, as well as certain compensation and other amounts paid 

to the adviser.

Private Fund Audit Rule. The reforms require registered private fund advisers to cause the 

private funds they advise to undergo a financial statement audit that meets the requirements

of the audit provision in the Advisers Act custody rule (rule 206(4)-2)). These audits will

provide an important check on the adviser’s valuation of private fund assets and protect 

private fund investors against the misappropriation of fund assets.

Adviser-Led Secondaries Rule. The reforms require a registered private fund adviser to 

obtain a fairness opinion or a valuation opinion when offering existing fund investors the 

option between selling their interests in a private fund and converting or exchanging their 

interests in the private fund for interests in another vehicle advised by the adviser or any of 

its related persons. The rule also requires the adviser to prepare and distribute to the private 

fund’s investors a summary of any material business relationships the adviser has, or has 

had within the prior two years, with the independent opinion provider. This requirement will

provide a check against an adviser’s conflicts of interest in structuring and leading such

transactions.

Books and Records Rule Amendments. To facilitate the Commission’s ability to assess an 

adviser’s compliance with the rules, the reforms include amendments to the books and 

records rule under the Advisers Act for registered private fund advisers.

For All Private Fund Advisers:

Restricted Activities Rule. To address certain conflicts of interest that have the potential to 

lead to investor harm, the reforms include a new rule that restricts all private fund advisers

from engaging in the following activities that are contrary to the public interest and the 

protection of investors:

• Charging or allocating to the private fund fees or expenses associated with an 

investigation of the adviser without disclosure and consent from fund investors.

Further, an adviser may not charge fees or expenses related to an investigation that 

results or has resulted in a court or governmental authority imposing a sanction for a 

violation of the Advisers Act or the rules promulgated thereunder;

• Charging or allocating to the private fund regulatory, examination, or compliance fees 

or expenses of the adviser, unless such fees and expenses are disclosed to 

investors;

• Reducing the amount of an adviser clawback by the amount of certain taxes, unless 

the adviser discloses the pre-tax and post-tax amount of the clawback to investors; 
FACT SHEET | Private Fund Adviser Reforms: Final Rules

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• Charging or allocating fees or expenses related to a portfolio investment on a nonpro rata basis, unless the allocation approach is fair and equitable and the adviser 

distributes advance written notice of the non-pro rata charge and a description of how 

the allocation approach is fair and equitable under the circumstances; and

• Borrowing or receiving an extension of credit from a private fund client without 

disclosure to, and consent from, fund investors.

Preferential Treatment Rule. To address the material, negative effects of specific types of 

preferential treatment on other investors, the reforms prohibit all private fund advisers from 

providing preferential terms to investors regarding: a) certain redemptions from the fund, 

unless the ability to redeem is required by applicable law or the adviser offers the preferential 

redemption rights to all other investors without qualification; and b) certain preferential 

information about portfolio holdings or exposures, unless such preferential information is 

offered to all investors. In addition, this rule prohibits all private fund advisers from providing 

preferential treatment to investors, unless certain terms are disclosed in advance of an 

investor’s investment in the private fund and all terms are disclosed after the investor’s 

investment.

Legacy Status. The Commission is providing legacy status for the prohibitions aspect of the 

Preferential Treatment Rule and the aspects of the Restricted Activities Rule that require 

investor consent. The legacy status provisions apply to governing agreements that were

entered into prior to the compliance date if the applicable rule would require the parties to 

amend the agreements.

For All Registered Advisers:

Compliance Rule Amendments. The reforms include amendments to the compliance rule 

under the Advisers Act requiring all registered advisers, including those that do not advise 

private funds, to document in writing the required annual review of their compliance policies 

and procedures. Written documentation of the annual review will help the Commission to 

determine advisers’ compliance with the with the rules and identify potential compliance 

program weaknesses.

The Quarterly Statement Rule, Private Fund Audit Rule, Adviser-Led Secondaries Rule, 

Restricted Activities Rule, and Preferential Treatment Rule do not apply to investment 

advisers with respect to securitized asset funds they advise.

What’s Next

For the Private Fund Audit Rule and the Quarterly Statement Rule, the compliance date will 

be 18 months after the date of publication in the Federal Register. For the Adviser-Led 

Secondaries Rule, the Preferential Treatment Rule, and the Restricted Activities Rule, the 

compliance dates are: for advisers with $1.5 billion or more in private funds assets under 

management, 12 months after the date of publication in the Federal Register; and for 

advisers with less than $1.5 billion in private funds assets under management, 18 months 

after the date of publication in the Federal Register. Compliance with the amended Advisers 

Act compliance rule will be required 60 days after publication in the Federal Register.