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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
United States | Publication | agosto 2023
On August 23, 2023, the Securities and Exchange Commission (SEC) adopted highly controversial new rules and rule amendments to the Investment Advisers Act of 1940 (the Advisers Act) in an effort to further regulate the private funds industry. These new rules attempt to "increas[e] transparency, competition and efficiency in the private funds market."
Important requirements of the new rules include the following:
Registered private fund advisers will now be required to:
All private fund advisers, including those not registered with the SEC, are now restricted from engaging in activities that are contrary to the public interest and the protection of investors without full disclosure and, in some instances, investor consent (the Restricted Activities Rule). This includes charging or allocating any fees or expenses to the private fund without the prior disclosure to fund investors for:
It also includes charging or allocating any fees or expenses to the private fund without the prior disclosure and consent of fund investors for:
Further, the reforms prohibit all private fund advisers from providing preferential treatment to certain investors for (i) certain redemptions from the fund (unless required by law) and (ii) certain preferential reporting regarding the investor's portfolio, unless such terms are offered to all investors. More broadly, all private fund advisers are prohibited from providing any preferential treatment to investors, unless certain terms are disclosed in advance of an investor's investment in the private fund and all terms are disclosed after the investor's investment (the Preferential Treatment Rule).
All registered advisers, including those that do not advise private funds, must document in writing, the required annual review of their compliance policies and procedures to allow for the SEC to determine advisers' compliance with the new rules and identify potential compliance weaknesses (the Compliance Rule Amendments).
The implementation of each new rule is subject to different timelines and certain legacy status. For governing agreements entered into prior to the compliance date that would require amendments to the current agreements, they are afforded legacy status with respect to the prohibitions aspect of the Preferential Treatment Rule and the investor consent requirements of the Restricted Activities Rule. Investment advisers that advise securitized asset funds are exempt from the Quarterly Statement Rule, Private Fund Audit Rule, Adviser-Led Secondaries Rule, Restricted Activities Rule and Preferential Treatment Rule for such funds.
The compliance dates are as follows:
These new rules, first proposed in February 2022, will result in rigorous and likely burdensome compliance requirements and costs to thousands of US private funds and advisers, as well as certain foreign advisers who take money from US investors. We expect, at a minimum, that the SEC's statutory authority to enact these Rules concerning currently unregistered advisers will face multiple challenges in federal courts. In the meantime, private fund advisers should ensure they understand the scope and requirements of the new rules as widespread changes are expected to private fund advisers' side letter processes, investor communications, reporting and expense allocations, among other things.
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