The state of private fund compliance has faced a stark evolution over the past 18 months – updated rules becoming overturned policies, ultimately, leaving many with more questions than answers.
However, while ongoing regulatory uncertainty has created unprecedented complexity within the space, there are still many strategies private fund compliance professionals can implement to improve their program and practices.
Upheaval in the Private Fund Regulatory Realm
The past year has seen significant changes in Private Fund Regulation, with the Securities and Exchange Commission (SEC) adopting sweeping new rules and amendments aimed at increasing transparency within the space.
The two major adoptions included:
The Private Fund Adviser Rules (PFAR) would have required fund managers to adhere to more strict guidelines. However, following the approval of the new rules, the National Association of Private Fund Managers, the Alternative Investment Management Association, Ltd., the American Investment Council, the Loan Syndications and Trading Association, the Managed Funds Association, and the National Venture Capital Association collectively sued the SEC.
The result? U.S overturned the rules, stating that the SEC lacked the “statutory authority” to create these guidelines, calling them “arbitrary and capricious.”
Maintaining Compliance in a Changing Landscape
While private fund regulation continues to be in flux, private fund managers must stay informed on the latest and greatest coming out of the SEC, as a single lapse in compliance can result in severe financial and legal ramifications. To help you stay on the right side of the regulator, we’ve sourced 5 of our top best practices specific to private funds.
1. Leverage Exam Priorities and Risk Alerts to assess your program and address any potential gaps.
The 2025 Examination Priorities highlight areas of focus specific to advisers to private funds:
- Fees and Expenses
- Disclosures
- Conflicts of Interest
- Adequacy of Policies and Procedures
- Form PF
Firms should leverage this information to assess their program and make any necessary adjustments to ensure they are maintaining the standard expected by the SEC.
2. Don’t Let Regulatory Filing Deadlines Fall Behind.
The SEC recently fined several firms for Form 13F and Form 13H violations, shining a light on their very real filings focus. Additionally, the SEC has often cited Form ADV issues as common deficiencies for firms of all sizes.
As a reminder, hedgefund and private equity advisers must fill out and file a Form ADV with the SEC within 90 days of the fiscal year’s end and must continue to update it as needed. This form contains general public information, including details on the firm, fund, and management persons.
Larger firms may also be required to file a Form PF, consisting of private information. Generally, both forms must be filed at least annually. It is important to note that the compliance date for the adpoted Form PF amendments has been extended to June 12, 2025. However, Form PF’s basic requirements are still in effect and a firm should file if:
- “The firm is registered or required to federally register with the SEC as investment adviser AND
- the firm manages one or more private funds AND
- the firm (and its related persons) collectively manage at least $150 million in private fund assets under management (“AUM”) as of the last day of the most recently completed fiscal year.”
Looking for filing support? Learn more about COMPLY’s Regulatory Filing Services.
3. Always Keep Your Fiduciary Duty Top of Mind.
As outlined by the SEC, an adviser’s fiduciary duty is generally comprised of Care, Disclosure, Conflict of Interest, and Compliance. Which, in short, means the firm must “adopt the principal’s goals, trust, objectives, or end,” to “serve the best interest of its clients.” For private fund advisers, the “clients” are the various funds being managed.
The takeaway? You must have a clear and precise understanding of each fund’s investment mandates and risk profile before making investments. Fund advisers must diligently research and analyze investment options, providing well-informed suggestions that are grounded in the most accurate information available.
Additionally, fiduciaries must implement ongoing monitoring to ensure investments remain in the fund’s best interest amid changing market conditions, as well as keep up clear communication about relevant risks and costs.
Finally, advisers must provide disclosures that are “clear and detailed enough” to allow for “a reasonably informed decision to consent to such conflicts and practices or reject them.”
4. Strictly Manage Your Material Non-Public Information (MNPI).
The SEC continues to focus on MNPI policies with multiple enforcement actions highlighting the significant impact misuse of MNPI can have on the industry.
Firms should:
- Have strict policies in place: Policies should address common issues, including the handling and dissemination of MNPI. Updates should be made to reflect recently cited issues such as work-from-home policies and mobile device usage.
- Implement additional training: All employees should thoroughly understand regulations regarding MNPI, with regular workshops being held as needed.
- Enforce security procedures: Information barriers should also be enacted to ensure departments are not improperly sharing information.
- Leverage updated technology: Implement data security practices, controlling access to highly sensitive information. Utilize compliance technology, like COMPLY’s Control Room, to manage the flow of MNPI.
5. Continue to Evolve Your Compliance Program.
After this past year, we know one thing: private fund compliance will only continue to evolve. And as it does, it is important to make every effort to stay up to date with current developments.
We recommend:
- Following the SEC’s latest news, updating your policies as needed and accounting for new risks, new mandates, and new compliance requirements.
- Investing in scalable compliance technology that enables you to make proactive compliance adjustments rather than having to face a post-deficiency scramble.
- Leaning into the experts who know and understand the SEC best. Compliance consultants are one of the best resources to answer your questions, assess your firm, and make strategic recommendations.
As the SEC assesses next steps and the market continues to shift, private funds will likely face additional compliance challenges. However, by practicing proactive regulatory risk management, firms can remain compliant – and protected.
Have compliance questions? We’re here to help. Contact one of our experts today.