On August 23, 2023, the SEC adopted final rules for private fund advisers (Rules), marking the biggest change in the industry since the Dodd‑Frank Act was passed in 2010. The five new Rules require advisers to provide quarterly fee, expense and performance reports; annual fund audits; fairness or valuation opinions in connection with adviser-led secondary transactions; disclosure and/or consent for certain “restricted activities”; and disclosures in connection with the preferential treatment of investors. The SEC also amended Rule 206(4)‑7 under the Investment Advisers Act of 1940, known as the “Compliance Rule,” to mandate written documentation of the adviser’s annual review of the effectiveness of its compliance program. The SEC adopted the Rules over strong dissents from Commissioners Hester M. Peirce and Mark T. Uyeda, who, among other concerns, questioned the SEC’s authority to enact the Rules. This first article in a two-part series parses the Rules and how they differ from the SEC’s original proposal (Proposal). The second article
will discuss the compliance challenges posed by the Rules and the next steps for CCOs. Future articles will dive into the details of each of the Rules, as well as what hedge fund managers need to do to comply with them. See our three-part coverage of comments on the Proposal: “General Concerns
” (Nov. 10, 2022); “Requests by Commenters
” (Dec. 8, 2022); and “Concerns About Specific Requirements
” (Jan. 19, 2023).