Private Fund Adviser Rules Preparation Guide

The Private Fund Adviser rules are complex, and different kinds of advisers must comply with a different set of requirements within the rules.  

The steps below will help advisers determine which sets of rules apply to them and how to begin preparing for implementation.  

​First: Assess the scope of the rule. Adviser registration status will determine which parts of the rule apply. ​ Advisers should determine if existing funds will have legacy status regarding certain restricted activities and preferential treatment rules based on expected subsequent closings. For advisers that intend to use existing fund documents as a template for future funds, the advisers should coordinate with counsel to identify provisions that are inconsistent with the rules. ​ 

Legacy status is only available for the aspects of the prohibitions aspect of the Preferential Treatment Rule and the aspects of the Restricted Activities Rule that require investor consent, and then only if amendments to the fund docs are required to comply. Advisers may also want to assess their fund documents for potential updates that might include more favorable provisions, for example, adding authority to charge certain fees or modifying procedures for engaging in restricted activities to match those paths to compliance required under the rule, which may be less draconian.  ​  ​ 

Next: Map out and document the firm’s road to implementation. SEC examiners scrutinized implementation following its adoption of the Marketing Rule. If a firm is unable to produce documentation to evidence an action being taken, examiners generally assume it did not happen.  

Include the following components in the firm’s roadmap:  ​ 

  1. Review policies and procedures, fund documents, and Form ADV disclosures to determine what changes are required. While some of these practices may be followed in spirit, firms will need to update compliance policies and fund regulatory disclosure documents to reflect any changes required by the new rules.​ 
  2. Conduct training to ensure all employees are aware of the upcoming changes and plan for future fund launches, including working with legal counsel on new fund documents to use post-close. ​
  3. Coordinate with the firm’s service providers. Many SEC registered private fund advisers will need to make significant changes over the next 12 – 18 months. Delegate or outsource areas in which the firm does not have the time, resources, or knowledge to meet the new regulatory expectations.​ This may include: 
  • Fund Administrator: Fund administrators will be instrumental in meeting the quarterly statement requirements. Firms that do not utilize fund administrators should start preparing for the necessary updates as soon as possible and seek help from a fund administrator if the firm is unable to meet the requirements internally.   ​ 
  • Auditors: Firms considering secondaries for non-legacy funds post compliance date should start the selection process for auditors for any funds that do not currently receive them and fairness opinion or valuation opinion service providers for those considering secondaries. ​ 
  • Legal counsel: Seek legal counsel to determine if any changes are necessary for future fund legal documents. ​ 
  • Compliance: Coordinate with the firm’s compliance partner to assist with making required changes to compliance policies and procedures and Form ADV disclosures.  

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