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Statement on Proposed Rules for Private Fund Advisers

Feb. 9, 2022

Transparency, protection against conflicts of interest, and accountability – these are cornerstones of investor protection in all markets and for all investors. I am pleased to support today’s proposal which seeks to achieve these goals in the private fund space in a thoughtful and well-informed manner. With over 5,000 registered private fund advisers managing over $18 trillion in private fund assets, this growing segment of the market has a significant impact on investors, capital markets and our economy. As noted in the release, the staff has a decade of oversight under its belt,[1] and now brings that depth of experience and expertise to bear in proposing a number of important reforms.

Today’s proposed rules address informational gaps and asymmetries, as well as inherent conflicts of interest that can harm investors and markets. In considering this proposal, it’s critical to note the large and growing presence of retail investors, and particularly those with retirement assets, exposed to this market. For example, U.S. pension funds hold roughly $480 billion in private equity investments, representing an average of about 9% of their holdings.[2] What’s more, so-called crossover investors such as mutual funds, with numerous retail investors, are steadily increasing their participation in these markets.[3] Thus, I’m pleased with the thoughtful approach today’s proposal takes and I look forward to public comment on all of the proposed changes. I will highlight today just a few of the most significant potential improvements.

One key reform is a proposed requirement for registered private fund advisers to provide private fund investors with a quarterly statement containing critical information about the fund’s fees and expenses at both the fund and portfolio investment level.[4] This detailed, simple, and clear information would give retail and institutional investors alike standardized cost information in a straightforward and digestible, tabular format. This information should facilitate reasoned, well-informed decisions by investors who may, in certain circumstances, otherwise be at a disadvantage vis-à-vis the adviser or other investors. As we’ve said before with respect to registered funds, the Commission has a “strongly held belief” that fees and expenses are centrally important to investment decision-making.[5] That principle holds true for private fund investors as well because informed decision-making is paramount to well-functioning capital markets. 

A second key area of reform relates to protection from certain conflicts of interest. For example, the proposal would prohibit a private fund adviser – whether registered or not – from granting preferential redemption terms to one or a subset of investors.[6] This practice can lead to significant dilution for those without the preference. Private fund advisers would be also required to disclose other forms of preferential treatment to all investors. Preferential treatment coupled with a lack of transparency can severely inhibit a party’s bargaining ability and power, essentially leaving investors to bargain in the dark. Lack of transparency can also inhibit the ability to make an informed decision about investments, which can impact returns. In sum, these proposed protections related to conflicts represent the collective wisdom of the staff after years of monitoring this space and observing the costly financial impact these conflicts can create.[7] I have full confidence in their assessment.

And finally, this proposal requires and promotes accountability among certain private fund advisers in a number of ways. Among the most prominent is the requirement to obtain a financial statement audit performed by an independent public accountant that is registered with and subject to regular inspection by the PCAOB.[8] As stated in the release, our experience has shown that audits provide meaningful protection against misleading information and misrepresentations of important metrics such as fees, performance and other items.[9] This provides a crucial safeguard for the accuracy of an adviser’s representations.[10]

The practical effect of the proposed rules is to help bring efficiency and fairness to this market, through transparency, addressing conflicts and creating accountability. I want to thank the staff in the Division of Investment Management, Examinations, and Economic Risk and Analysis, and the Office of the General Counsel. Together, you have produced a well-considered, meaningful and balanced regulatory framework, and I’m happy to support this proposal.  


[1] See, e.g., EXAMS National Examination Program Risk Alert: Observations from Examinations of Private Fund Advisers (Jan. 27, 2022), available at; OCIE National Examination Program Risk Alert: Observations from Examinations of Investment Advisers Managing Private Funds (June 23, 2020), available at  As of December 17, 2020, the Office of Compliance, Inspections and Examinations was renamed the Division of Examinations. See also Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010) at Title IV – Regulation of Advisers to Hedge Funds and Other Funds.

[3] PitchBook, Crossing Over Into Venture (2021), available at also Division of Investment Management: Analytics Office, Private Funds Statistics Report:  First Calendar Quarter 2021 (Nov. 1, 2021), at Table 13, available at (showing the beneficial ownership of pension plans, individuals, state and municipal pension plans, among other categories of owners in reporting private funds).

[4] Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews, Investment Advisers Act Release No. [5955] (Feb. 9, 2022) (“Proposing Release”).

[5] Registration Form Used by Open-End Management Investment Companies, Investment Company Act Release No. 23064 (Mar. 13, 1998), [63 FR 19286 (Apr. 17, 1998)], available at (noting that “[i]ncluding the fee table in both the prospectus and the profile reflects the Commission’s strongly held belief in the importance of fees and expenses in a typical investor’s decision to invest in a fund.”).

[6] See Proposing Release, supra note 4.  Specifically, the proposal generally provides that an adviser to a private fund may not, directly or indirectly, grant an investor in the private fund the ability to redeem its interest on terms that the adviser reasonably expects to have a material, negative effect on other investors in that private fund.

[7] See, e.g., OCIE National Examination Program Risk Alert: Observations from Examinations of Investment Advisers Managing Private Funds (June 23, 2020), available at (staff “observed private fund advisers that entered into agreements with select investors (“side letters”) that established special terms, including preferential liquidity terms, but did not provide adequate disclosure about these side letters… Failure to disclose these special terms adequately meant that some investors were unaware of the potential harm that could be caused by selected investors redeeming their investments ahead of other investors, particularly in times of market dislocation where there is a greater likelihood of a financial impact.”).

[8] Proposing Release, supra note 4.

[9] Proposing Release, supra note 4, at pages 101-102.

[10] Equally important in terms of accountability, the proposal requires all registered advisers – not just private fund advisers – to document the annual policy and procedure review in writing.  Since the Compliance Rule was adopted well over a decade ago, these reviews have served as a critical assessment of an adviser’s compliance structure.  Today’s proposal reflects the staff’s experience in observing numerous instances of advisers being unable to demonstrate having conducted those annual reviews. Given the significance of this annual review in terms of compliance with the federal securities laws, this documentation requirement should help ensure that these reviews are well-managed and thorough.  See Compliance Programs of Investment Companies and Investment Advisers, Investment Advisers Act Release No. 2204 (Dec. 17, 2003) [38 FR 74714 (Dec. 24, 2003)].  

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