SEC Private Fund Adviser Reforms: Final Rules
Increased reporting/disclosure to investors; new compliance documentation requirements for all registered advisers

KPMG Regulatory Insight
- The SEC’s new rules and rule amendments expands regulation requirements for private fund advisers.
- In final form, however, the provisions include modifications from the proposal that provide advisers with some flexibility, such as:
- The ability to now choose between a fairness opinion and a valuation opinion for advisor-led secondary transactions
- The ability to engage in activities they may not otherwise engage in (e.g., certain fees, expenses, clawbacks) provided they make certain disclosures or obtain investor consent.
- The new requirements will improve investors’ ability to monitor the costs and performance of their fund investments, including compensation, fees, and expenses, and to more easily make comparisons between prospective investments.
August 2023
The Securities & Exchange Commission (SEC) has adopted final rules and amendments under the Investment Advisers Act of 1940 (Advisers Act) that enhance regulation of private fund advisers with the goal of protecting investors. The SEC states the rules are designed to address three factors for risks and harms in an adviser’s relationship with private funds and their investors: “lack of transparency, conflicts of interest, and lack of effective governance mechanisms for client disclosure, consent, and oversight.”
The SEC highlights several “key changes” from the proposal (see KPMG Regulatory Alert, here) including:
- A change in scope, such that the five new rules adopted will not apply to investment advisers with respect to securitized asset funds they advise.
- A ten-year lookback for certain liquid fund performance metrics rather than measuring such performance since inception under the Quarterly Statement Rule, as well as additional time for delivery of the fourth quarter statements.
- An option for advisers to choose between a fairness opinion or a valuation opinion under the Advisor-Led Secondaries Rule.
- Permission for an adviser to engage in certain activities if they provide certain disclosures or, in some cases, investor consent (under the Restricted Activities Rule, which has been renamed from the proposed Prohibited Activities Rule).
- Adoption of “legacy status” under the Restricted Activities Rule and the Preferential Treatment Rule for certain governing agreements.
The final rules and amendments are highlighted below. Changes from the proposal are denoted in italics.
Quarterly Statements, Independent Audits, and Fairness Opinions. The rules will require registered private fund advisers (or advisers required to be registered) to:
Quarterly Statement Rule | Prepare and distribute quarterly statements for each private fund that they advise to the fund’s investors covering fund-level information, including fees, expenses, performance, and adviser compensation within forty-five (45) days after the first three fiscal quarter ends, and ninety (90) days after the fiscal year end (for a private fund that is a fund of funds, the quarterly statement must be distributed within seventy-five (75) days after the first three fiscal quarter ends, and one hundred twenty (120) days after the fiscal year end). As part of the quarterly statement:
|
---|---|
Private Fund Audit Rule | Obtain an annual independent financial statement audit of each private fund they advise that meets the requirements of the audit provision in the Advisers Act Custody Rule (Rule 206(4)-2)), including:
|
Adviser-Led Secondaries Rule | Obtain and distribute a fairness or valuation opinion from an independent opinion provider (prior to due date of the election form) in connection with certain adviser-led secondary transactions where an adviser offers fund investors the option to sell their interests in the private fund, or to exchange them for new interests in another vehicle advised by the adviser. Prepare and distribute to private fund investors a written summary of any material business relationships the adviser or any of its related persons has, or has had within the past two years, with the independent opinion provider. |
Restricted Activities and Preferential Treatment. Additionally, the final rules adopt provisions for all private fund advisers (regardless of registration status) that may restrict certain activities and practices the SEC states have the potential to lead to investor harms:
Restricted Activities Rule | In a change from the proposal, the final rule restricts private fund advisers from engaging in the following activities unless they satisfy certain disclosure and, in some cases, consent requirements:
The SEC did not adopt the proposed provisions related to fees for unperformed services or indemnification. |
---|---|
Preferential Treatment Rule | Under the final rule, advisers may not provide preferential treatment to an investor if the adviser reasonably expects the preferential terms would have a material, negative effect on other investors, specifically with respect to:
In addition, an adviser may not provide any preferential treatment for any investor unless the adviser provides written notices disclosing i) certain preferential terms to prospective investors prior to the investor’s investment in the private fund, and ii) at least annually, all preferential terms provided to investors in the same private fund, regardless of whether the fund is liquid or illiquid. |
Adviser Misconduct | SEC did not adopt provisions from the proposal related to adviser misconduct regarding:
|
Books and Records Rule Amendments. The SEC also adopted amendments to the Advisers Act “books and records rule” that require advisers to private funds that are registered or required to be registered to retain books and records related to the requirements for the Quarterly Statement Rule, Annual Audit Rule, Adviser-Led Secondaries Rule, the Preferential Treatment Rule and the Restricted Activities Rule.
Compliance Rule Amendments. For all registered advisers, including those that do not advise private funds, the final rule amends the Adviser Act “compliance rule” to require the advisers to document in writing the required annual review of the adequacy of compliance policies and procedures and the effectiveness of their implementation.
Compliance Dates. The final rules and amendments provide for the following compliance dates:
- Compliance with the Quarterly Statement and Audit Rules will be required eighteen (18) months after publication in the Federal Register for all private fund advisers.
- Compliance with the Adviser-Led Secondaries, Preferential Treatment, and Restricted Activities Rules will vary based on an adviser’s assets under management (AUM):
- Advisers with $1.5 billion or more in AUM (“larger” private fund advisers) will be required to comply with the rules twelve (12) months after publication in the Federal Register.
- Advisers with less than $1.5 billion in AUM (“smaller” private fund advisers) will be required to comply with the rules eighteen (18) months after publication in the Federal Register.
- Compliance with the amended Advisers Act compliance rule will be required for all advisers sixty (60) days after publication in the Federal Register.
Legacy Status. The SEC will provide a “legacy” status for aspects of the Preferential Treatment Rule (which restricts advisers’ ability to provide certain preferential redemption rights and information about portfolio holdings) and the aspects of the Restricted Activities Rule that require investor consent (which restrict an adviser from borrowing from a private fund and from charging for certain investigation fees and expenses). The legacy status applies to governing agreements that were entered into prior to the compliance date if compliance with the rules would require parties to amend the agreement by private funds that had commenced operations as of the compliance date.
Dive into our thinking:
SEC Private Fund Adviser Reforms: Final Rules
Download PDFExplore more
Meet our team



Get the latest from KPMG Regulatory Insights
KPMG Regulatory Insights is the thought leader hub for timely insight on risk and regulatory developments.