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The Art of Dispute: Key case law and recent developments in dispute resolution
Our newsletter provides practical advice and a concise analysis of key case law and recent developments in dispute resolution.
United States | Publication | January 2022
The US Securities and Exchange Commission (SEC) continues to signal that it is expanding oversight of private funds. On January 26, 2022, it announced that it is seeking to impose additional reporting requirements for large hedge fund and private equity advisers. These proposed amendments come on the heels of the SEC's recent announcement that it will more closely scrutinize the transaction costs and fees charged by private equity and hedge funds, which we wrote about in this client alert and in this article. As further evidence of this closer scrutiny, on January 27, the SEC's Division of Examinations published a risk alert detailing compliance issues observed by its staff during their examinations of private fund advisers. These observed compliance issues include: (A) failure to act consistently with disclosures; (B) use of misleading disclosures regarding performance and marketing; (C) due diligence failures relating to investments or service providers; and (D) use of potentially misleading "hedge clauses" (i.e. clauses that seek to limit an adviser's liability). In light of these observations and the recently proposed amendments, private equity and hedge funds should be aware that the SEC remains focused on their conduct and should take proactive measures to ensure compliance with the new requirements stemming from such efforts.
The new amendments proposed by the SEC concern Form PF—the confidential reporting form for certain SEC-registered investment advisers to private funds. If passed, the amendments would impose additional reporting requirements for large hedge fund and private equity advisers. According to the press release, the amendments are "designed to enhance the Financial Stability Oversight Council's (FSOC) ability to assess systemic risk as well as to bolster the Commission's regulatory oversight of private fund advisers and its investor protection efforts in light of the growth of the private fund industry." Chairman Gary Gensler explained that the main goal of the proposals is to allow regulators to better spot risks building up in private markets, stepping up an effort that began after the 2008 financial crisis: "the SEC has now had almost a decade of experience analyzing the information collected on Form PF . . . [w]e have identified significant information gaps and situations where we would benefit from additional information."
As such, the proposed amendments would increase reporting requirements in the following manner:
The proposed amendments will be open for comment for 30 days following their publication in the Federal Register.
Special thanks to Emma Yeremou-Ngah for her assistance in the preparation of this content.
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