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Vedder Thinking | Articles SEC Chair's Remarks Suggest Heightened Regulatory Scrutiny of Private Funds


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On November 10, 2021, SEC Chair Gary Gensler delivered remarks at the Institutional Limited Partners Association (ILPA) Summit, outlining his objectives for the SEC’s oversight of private funds and signaling potential areas of increased regulatory scrutiny.  The topics addressed by Chair Gensler included the following:   

  • Fees and Expenses­­. Chair Gensler discussed his intention to promote additional transparency around fees and expenses to private fund investors.In contrast to the reductions over time in registered fund fees, he noted that there has not been significant downward movement from the traditional “2 and 20” model for private fund annual management and performance fees.Suggesting that investors may not have sufficient insight to foster competition on fees, Chair Gensler has asked the SEC staff to consider what recommendations the staff could make to bring greater transparency to private fund fee arrangements.

  • Side Letters. Chair Gensler expressed the view that certain side letter provisions create an uneven playing field among limited partners, particularly with respect to preferred liquidity terms or disclosures.Similarly, he alluded to research in this area suggesting that similar pension plans consistently pay different private equity fees.Thus, he noted that he has tasked his staff with considering recommendations to “level the playing field”, including, notably, whether certain side letter provisions should not be permitted.

  • Performance Metrics. Chair Gensler also signaled his intention to increase transparency of private fund performance metrics, noting his staff has been asked to consider potential areas for enhancements.

  • Fiduciary Duties and Conflicts of Interest. Acknowledging that general partners occasionally seek waivers at the state level of their fiduciary duties to investors, Chair Gensler emphasized that an investment adviser to a private fund has a federal fiduciary duty to the fund enforceable under the Investment Advisers Act of 1940 , which may not be waived.He also stressed that contract provisions purporting to waive the adviser’s federal fiduciary duty are inconsistent with the Advisers Act, regardless of the client’s sophistication. He has asked the staff to consider how the SEC can better mitigate the effects of conflicts of interest between general partners, their affiliates and investors, including the potential for prohibitions on certain conflicts and practices.

  • Form PF and the Availability of Private Fund Data to Regulators. Finally, Chair Gensler noted that he has asked the SEC staff for recommendations to enhance private fund reporting and disclosure through Form PF or other reforms.Recently, on January 26, 2022, the SEC issued proposed changes to Form PF to require current reporting and amend reporting requirements for large private equity fund advisers and large liquidity fund advisers.

A copy of Chair Gensler’s remarks to the ILPA is available here.


Jacob C. Tiedt


John S. Marten


Nathaniel Segal


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