On April 25, 2022, the Committee submitted a comment letter to the Securities and Exchange Commission (the “SEC”) regarding its proposed rule on private fund advisers (the “Proposed Rule”).

The Proposed Rule includes a series of new rules and amendments under the Investment Advisers Act of 1940, as amended, applicable to investment advisers to private funds. If adopted, the Proposed Rule would significantly expand the regulation of private fund advisers, including, inter alia, by: (i) restricting enumerated “prohibited activities” (e.g., charging certain types of fees and contractually limiting private fund advisers’ liability for negligence); (ii) prohibiting certain forms of “preferential treatment” extended to select investors through side letters or similar arrangements; (iii) requiring quarterly disclosures regarding fund fees, expenses, and performance; and (iv) mandating annual audits of private funds.
The Committee submits that the Proposed Rule lacks clear basis in the SEC’s statutory authorities, most prominently with the prohibitions of certain indemnification clauses and the charging of certain fee and expense types. The Committee also concludes that the cost-benefit analysis in the Proposed Rule (the “CBA”) is inadequate to support such a sweeping departure from the existing private and public fund market structure.

The letter proceeds in two parts. Part 1 describes the Proposed Rule. Part 2 analyzes the Proposed Rule from a legal and public policy perspective and assesses the CBA.

The full comment letter is available here.