Private Equity Compliance Update: Conflicts of Interest, Fees and Expenses, Nonpublic Information, and the New Marketing Rule

The SEC's Office of Compliance Inspections and Examinations (OCIE) recently issued a risk alert on private fund advisers' deficiencies. This guidance focuses on disclosure deficiencies regarding conflicts of interest and fees and expenses, and treatment of material nonpublic information (MNPI), among other compliance issues. Advisers and their counsel should carefully evaluate fund policies and procedures to avoid the pitfalls described in the OCIE Risk Alert.

Conflict of interest disclosures should include client investments, co-investment opportunities, and allocations within the fund. Special concerns arise when fund managers operate multiple funds that involve both debt and equity investments. Sponsors should have policies and procedures in place that properly allocate investments and resources between their PE and private credit funds.

Counsel to funds should thoroughly assess advisory fees and expense practices and clearly disclose fees and expenses allocated to the fund. Regarding the treatment of MNPI, managers should have internal processes for adding and removing restricted securities, enforcement of trading restrictions, and approval of personal securities transactions.

In December 2020, the SEC adopted a new marketing rule (Marketing Rule) which imposes many new and detailed compliance requirements on investment advisers that engage in marketing activities and/or are party to referral or solicitation arrangements with placement agents. Registered investment advisers will need to review their marketing and solicitation policies and procedures in light of the new compliance requirements in the Marketing Rule.

Listen as our authoritative panel provides an update on compliance issues currently emphasized by the SEC in its examinations and best practices for private equity advisers to address them.