Parsing the Significance of the SEC’s FAQ on the Presentation of Gross and Net Performance

On November 4, 2022, the SEC’s new marketing rule (Marketing Rule) became the law of the land for registered investment advisers, including private fund managers. During the preceding 18 months, industry insiders made repeated pleas for additional guidance on the Marketing Rule and clarification of certain requirements. The SEC, however, did not respond to such requests until January 11, 2023, when it updated its Marketing Compliance Frequently Asked Questions (FAQ) to address a narrow issue on the presentation of gross and net performance. To better understand the FAQ, the Hedge Fund Law Report spoke with Christopher S. Avellaneda, partner at Schulte Roth & Zabel LLP. This article summarizes the FAQ and shares Avellaneda’s perspective on the FAQ and its implications for how private fund managers present their funds’ performance in advertisements. See our two-part series on the Marketing Rule: “Key Takeaways for Private Fund Managers” (Mar. 18, 2021); and “Next Steps for Legal and Compliance” (Mar. 25, 2021); as well as “The New Marketing Rule: Key Elements and SEC Commissioner Concerns” (Mar. 4, 2021).

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