SEC Releases Statement On Private Fund Advisors Proposal
From the Desk of Jim Eccleston at ÍøÆسԹÏ:
The Securities and Exchange Commission (SEC) is proposing to amend the Investment Advisors Act to improve the efficiency, competition, and transparency of the activities of private funds’ advisors, according to SEC chairman Gary Gensler.
Gensler supports the proposal because it seeks to help investors in private funds while also aiding companies that raise capital from those funds. Private funds currently oversee $18 trillion in gross assets, continue to grow in size, complexity and number.
First, the proposal would serve to increase transparency and promote the disclosure of fee structures, expenses and performance metrics. Second, the proposal would restrict private fund advisors from participating in certain activities that fail to adhere to public interest and the protection of clients. For instance, the proposal would prohibit seeking reimbursement, indemnification, or limitation of its liability for specific activities, including a breach of fiduciary duty in providing services to the private fund.
The proposal also would restrict preferential treatment unless disclosed to potential and existing investors. The amendments additionally would require an annual audit of private funds, which would be provided to the funds’ investors. Finally, the proposal would mandate that private fund advisors obtain a fairness opinion from an independent organization in connection with a specific type of transaction where the advisor may profit at the expense of the private fund investor. According to Gensler, this amendment would serve as a check against an advisor’s conflicts of interest in designing those types of secondary transactions.
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Tags: eccleston, eccleston law, SEC
