New, Enhanced Regulations for Private Fund Advisers

The U.S. Securities and Exchange Commission (SEC) released its final rules for private fund advisers on August 23, 2023. All rules apply to registered private funds advisers, while some apply to unregistered private fund advisers.


Many private fund advisers are investment advisers who are required to register with the SEC or applicable state securities regulators as a registered investment adviser, unless they are exempt from applicable registration requirements.


According to the SEC, the new rules and amendments are designed to protect private fund investors by increasing transparency, competition, and efficiency in the private funds market. While the changes mark the most significant overhaul to the existing rules since 2010, the SEC diluted some rules against the SEC’s original proposal.


A summary of the newly adopted rules is detailed below.


Rules applying only to registered private fund advisers


Quarterly Statement Rule

Provide investors with quarterly statements that detail certain information regarding fund fees, expenses, and performance.


Audit Rule

Obtain an annual financial statement audit, and distribute to investors of each private fund it advises.


Adviser-Led Secondaries Rule

Obtain a fairness or valuation opinion in connection with an adviser-led secondary transaction.


Rules applying to all private fund advisers


Preferential Treatment Rule

Private fund advisors are prohibited from providing investors preferential treatment regarding redemptions that would have a material, negative effect on other investors unless they meet certain exception requirements. In all other cases of preferential treatment, certain specified disclosures concerning preferential terms must be provided to all current and prospective investors.


Restricted Activities Rule

Private fund advisers are generally not prohibited from engaging in certain restricted activities, as long as they provide appropriate specified disclosures and, in some cases, obtain investor consent. However, the rules prohibit a private fund adviser from charging or allocating certain investigation costs to a private fund where there is a sanction for a violation of the Investment Advisers Act of 1940 or its rules.


Compliance Date and Transition Period


While the rules become effective 60 days after publication in the Federal Register (Compliance Date), the SEC adopted a transition period for most amendments. In addition, the SEC adopted an 18-month transition period for smaller private fund advisers with assets under management below $1.5 billion. For larger private fund advisors, surpassing the above aforementioned threshold, the quarterly statement rule and the audit rule has an 18-month transition period, while the adviser-led secondaries rule, preferential treatment rule, and the restricted activities rule has a 12-month transition period.


Legacy Status

The SEC adopted legacy status provisions applicable to certain restricted activities and preferential treatment provisions. These provisions avoid requiring advisers and investors to renegotiate governing agreements for existing funds. Such legacy status applies to those governing agreements entered into prior to the compliance date, and those that have commenced operations as of the Compliance Date.


Final Thoughts


The new rules for private fund advisers contain a number of requirements that private fund advisers should familiarize themselves with. While some of the new rules only apply to registered private fund advisers, it is wise to consult legal counsel to determine whether any of the amendments apply to an individual fund. All fund managers should consider whether the updates are needed for their private fund financial reporting, governing documents, and internal policies and procedures.


Author, Sonja Dugan

Audit Director

Spiegel Accountancy





Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.