• |

    Jan. 18, 2024

Application of the New Private Fund Adviser Rules to Offshore Advisers

On August 23, 2023, the SEC adopted five new rules applicable to private fund advisers: (1) the Quarterly Statement Rule; (2) the Private Fund Audit Rule; (3) the Adviser-Led Secondaries Rule; (4) the Restricted Activities Rule; and (5) the Preferential Treatment Rule (collectively, PFA Rules). The SEC also amended Rule 206(4)-7 (the Compliance Rule) and Rule 204-2 (the Books and Records Rule). Although these new rules will have broad ramifications for advisers to private funds in the U.S., they also apply in certain instances to advisers whose principal office and place of business is outside of the U.S. (offshore advisers). Given the generalized guidance from the SEC in the PFA Rules, this guest article by Morgan Lewis attorneys Christine Ayako Schleppegrell, Christine Lombardo, Joshua Gurney and Ellen Weinstein explores some of the considerable nuances in how the PFA Rules may apply to offshore advisers. See our two-part series on the PFA Rules: “Overview and Key Changes From the Proposal” (Sep. 28, 2023); and “Key Compliance Challenges and Next Steps” (Oct. 12, 2023).

SEC and CFTC 2023 Enforcement Results: Robust Enforcement Activity and Significant Monetary Sanctions

In November 2023, the SEC and CFTC released their enforcement results for their fiscal years that ended September 30, 2023. Both agencies reported ongoing robust enforcement activity and significant monetary sanctions. The SEC report reflects how its enforcement efforts helped it achieve its goals of improving oversight; protecting whistleblowers; encouraging self-reporting, remediation and cooperation; holding individuals and gatekeepers accountable; and addressing misconduct involving digital assets and environmental, social and governance claims. The CFTC report touts its emergence as a “premier enforcement agency in the digital asset space” and illustrates its continuing efforts to combat fraud and market abuse. This article discusses the agencies’ enforcement results and the concerns of SEC Commissioner Mark T. Uyeda over the SEC’s exercise of its enforcement powers. See “Discussing 2022 Enforcement Results, SEC Enforcement Director Stresses Trust-Building Measures” (Jan. 5, 2023); and “CFTC Enforcement Report Reflects Strong Focus on Digital Assets” (Dec. 22, 2022).

D.C. and Illinois Restrictive Covenant Reforms Threaten Fund Managers’ Non‑Compete Arrangements (Part One of Two)

Unemployment rates have dropped to pre-pandemic figures, and there has been a large migration of workers between jobs as individuals look for better pay, career advancement and other perks. In turn, employers of all types are forced to consider the legality of their non-compete and non-solicitation provisions with departing employees; whether they want to exercise them; and whether it even remains legal to do so. Those considerations were addressed in a Proskauer program, entitled “Restrictive Covenants: Key Developments and Practical Considerations in Employment Law” and featuring partners Steven J. Pearlman and Guy Brenner. This first article in a two-part series outlines changes in restrictive covenant laws in Illinois and Washington, D.C., which could eventually trickle down to other jurisdictions. The second article will examine emerging trends in jurisdictions across the U.S. on choice of law provisions, treatment of certain categories of workers and the role of garden leave provisions, as well as developments at the federal level worth monitoring. For additional insights from Proskauer, see “The Continuing Trend – and Potential Ramifications – of Increasing Private Fund Manager Obligations” (Jul. 6, 2023); and “New York Updated Its Model Sexual Harassment Policy and Training Materials” (Jun. 8, 2023).

FINRA Proposes to Permit Use of Performance Projections and Target Returns in Marketing

FINRA Rule 2210 presently prohibits communications by FINRA members from including any prediction or projection of investment performance, except in very limited circumstances. Recognizing that its current prohibition on projections is more restrictive than the SEC’s regime for investment advisers under the new Marketing Rule and that certain sophisticated investors may benefit from additional performance-related information from broker-dealers, FINRA has proposed amending Rule 2210 to permit use of projected performance and/or target returns in communications to institutional investors and qualified purchasers in private placements, provided certain conditions are met. This article parses the proposed rule changes. See “A Look at FINRA’s 2023 Report on Examinations and Risk Monitoring” (Mar. 16, 2023); and “FINRA Reports on Examinations and Risk Monitoring” (Apr. 7, 2022).

FCA Review Assesses Fund Managers’ Implementation of ESG Goals

In July 2021, the U.K. Financial Conduct Authority (FCA) issued a set of guiding principles (Guiding Principles) for authorized fund managers (AFMs) with funds that pursue a responsible or sustainable investment strategy and claim to pursue sustainability or environmental, social or governance characteristics, themes or outcomes (ESG funds). The FCA recently conducted a review of how AFMs were applying the Guiding Principles to the design and operation of their ESG funds. This article discusses the FCA’s findings. See “FCA Seeks Input on Updating Asset Management Regulation” (Apr. 27, 2023).

Christopher J. Scully Joins Weil in D.C.

Weil, Gotshal & Manges LLP announced that Christopher J. Scully has joined the firm as a partner in the private funds practice. Based in Washington, D.C., Scully focuses his practice on representing private funds, as well as SEC-registered, state-registered and exempt advisers. See “Advisers and Brokers Must Be Wary of Municipal Advisor Registration Requirements” (Mar. 30, 2023); and “Exempt Reporting Advisers Not Exempt From SEC Scrutiny for Fee Calculation Errors” (Nov. 10, 2022).

Most-Read Articles