• |

    Dec. 8, 2022

Private Fund Reform Proposal Comments: Requests by Commenters (Part Two of Three)

In early 2022, the SEC released a number of major rule proposals that may impact private fund managers, most notably proposed private fund reforms (Proposal). The original deadline for public comments on the 342‑page Proposal was April 25, 2022. In response to numerous requests for additional time given the scope and nature of the proposed changes and new rules, the SEC extended the deadline to June 13, 2022. As of September 27, 2022, 317 comment letters were submitted in response to the Proposal: 228 submitted by the original deadline and the remaining 89 submitted by – and after – the extended deadline. The Hedge Fund Law Report reviewed a targeted cross-section of the comment letters to identify common concerns, issues and requests. This second article in a three-part series presenting key takeaways from the selected comment letters discusses three requests made by commenters. The first article summarized general concerns raised in the comment letters about the SEC’s authority to make the proposed changes, as well as the scope, intent and impact of the Proposal. The third article will present concerns about specific requirements in the Proposal, particularly the bans on providing preferential treatment to certain investors and on other distinct practices. See our two-part series on the Proposal: “General Observations” (Apr. 7, 2022); and “Rule‑Specific Concerns and Next Steps” (Apr. 14, 2022); as well as “Overview of the Proposal and the Importance of Industry Comments” (March 17, 2022).

SEC Oversight Proposal: New Rules for Advisers That Outsource Key Functions (Part One of Two)

Citing concerns about the use of outsourcing by investment advisers, the SEC recently issued a proposal (Proposal) to impose a comprehensive due diligence, monitoring and recordkeeping framework on advisers that outsource so-called “covered functions.” Proposed Rule 206(4)‑11 under the Investment Advisers Act of 1940 would require advisers to conduct appropriate due diligence before outsourcing a covered function, as well as periodic monitoring and reassessments of third-party service providers. The Proposal also includes amendments to SEC books and records rules and would require advisers to report information about outsourcing and service providers on Form ADV. This first article in a two-part series details the Proposal, including the rationale for it and the views of several Commissioners on the proposed changes. The second article will identify key issues with the Proposal and a key takeaway for hedge fund managers. See our coverage of other recent SEC rulemaking proposals: first Form PF proposal; second Form PF proposal; proxy voting rules; climate risk disclosure; beneficial ownership reporting; private fund rules; short sales; cyber risk management; and security based swaps.

Senior GCs at Leading Private Fund Managers Share Practical Tips and Insights

As part of its Advanced Issues in Private Funds 2022 program, the Practising Law Institute gathered a panel of three of the most senior general counsel (GC) in the alternative asset management industry for an in-depth discussion about how their legal departments are organized; changes and challenges faced in recent years; tips for how GCs can stay at the top of their game; and ways outside counsel can improve. The panel was moderated by Paul Weiss partner Udi Grofman and featured Susanne V. Clark, senior managing director and GC at Centerbridge Partners, LP; Noah C. Goldberg, managing director and senior deputy GC at Citadel; and Tracey Brady Yurko, chief legal officer and corporate secretary at Bridgewater Associates, LP. This article outlines relevant takeaways from the discussion. See “Paul Weiss Partner Udi Grofman Discusses How and Why Hedge Fund Managers Are Capitalizing on Co-Investment Opportunities” (Dec. 11, 2014).

Adviser Sanctioned for Disclosure Issues and Inadequate Proxy Voting Policies

Rule 206(4)‑6 under the Investment Advisers Act of 1940 requires an adviser to adopt and implement written policies and procedures on proxy voting. An investment company adviser voted proxies for its funds’ portfolio companies pursuant to a standing order to vote in accordance with management recommendations and against all shareholder proposals. The SEC, in a settled enforcement proceeding, asserted that the adviser had deviated from its disclosed voting practices, failed to determine whether it voted proxies in its clients’ best interests and lacked appropriate policies and procedures for proxy voting. Commissioners Hester M. Peirce and Mark T. Uyeda, in a dissenting statement, argued that the settlement order could have an adverse effect on how advisers develop their proxy voting policies and procedures. This article parses the settlement order and the Peirce/Uyeda dissent, with commentary from Ropes & Gray partners R. Daniel O’Connor and George B. Raine. See “Dissecting the SEC’s Recent Guidance on Investment Adviser Proxy Voting Responsibilities” (Oct. 24, 2019); and “SEC Issues Guidance on Proxy Voting Responsibilities of Investment Advisers” (Oct. 10, 2019).

DOJ Report Details Its Approach to Law Enforcement Involving Digital Assets

On March 9, 2022, President Biden issued Executive Order 14067 on responsible development of digital assets, which directed the Attorney General to submit a report on the role of law enforcement in addressing criminal activity involving digital assets and to recommend any desirable associated regulatory or legislative actions. On September 16, 2022, the DOJ issued its report, The Role Of Law Enforcement In Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets (Report), which was prepared by the DOJ’s National Cryptocurrency Enforcement Team in consultation with the Departments of the Treasury and Homeland Security, and with input from federal regulatory agencies. The Report follows the DOJ’s June 2022 report on international law enforcement cooperation regarding digital assets, which was also created pursuant to the Executive Order. It also serves as an update to the DOJ’s 2020 cryptocurrency enforcement framework. This article details the key takeaways from the Report. See “Crypto Attorneys to SEC: Talk to Us” (Jun. 9, 2022); and “Recent Regulatory and Market Developments Affecting Digital Asset Funds and Digital Securities” (Jul. 22, 2021).

Akin Gump Expands Tax Practice in Boston

Akin Gump announced that Timothy Becker and Wells Miller have joined the firm as partners in the tax practice in Boston. Becker maintains a broad transactional and advisory practice, providing tax, structuring and other related legal and business advice to a wide variety of clients, particularly in the investment funds industry. Focusing on executive compensation, Miller brings more than a decade of experience working with private equity firms, private companies and executives to structure and implement effective and tax-efficient compensation and benefit plans in compliance with ERISA and other applicable regulations. For more insights from Akin Gump attorneys, see “A Roadmap to Proposed ESG Disclosures on Form ADV” (Jul. 14, 2022).

Most-Read Articles