Private Fund Managers Regulatory Compliance Concerns 2024

Published: Jan 8, 2024
By: Louis Bruno
Topics: Public Companies
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The SEC ended 2023 with 43 proposed and final stage rules. Many of these rules will directly impact private fund managers and will require significant changes to comply.

New SEC Regulations at a Glance

Most notably, the SEC finalized the Private Fund Advisers Rules which will have a significant impact on the firm’s operations and demand for data. Additional proposed rules remain for cybersecurity risk management, ESG investing, outsourcing, and custody.

Private Fund Advisers Rules
	Compliance Dates
	2023	2024	2025
Quarterly Statements: Requires distribution of quarterly investor statements with detailed expenses and performance reporting.			Mar-25
Prohibited Activities: Prohibits engaging in certain activities without satisfying disclosures, consent and other criteria.		Sep-24	Mar-25
Preferential Treatment: Identifies redemption and portfolio holding transparency rights and prohibited preferential treatment to investors.		Sep-24	Mar-25
Adviser-led Secondaries: Requires advisers to distribute a fairness or valuation opinion to investors.		Sep-24	Mar-25
Annual Audit: Requires a financial statement audit to be delivered in accordance with the Custody Rule.			Mar-25
Recordkeeping: Maintain records required by the rules, including but not limited to all investor notifications, consent, and compliance reviews.	Jan-24
Compliance Review: Requires that the CCO document the annual compliance review (including testing) of policies and procedures.	Jan-24
Reporting Rules
Beneficial Ownership Reporting (SEC Form 13G) requires filing of qualified institutional investors, exempt investors, and passive investors with beneficial ownership of greater than 5% of a public company's total stock issue.		Sep-24
Beneficial Ownership Reporting (SEC Form 13G and 13D) requires filings use a structured, machine-readable XML-based lanugage.			Dec-24
Large Hedge Fund Advisers (SEC Form PF) with at least $1.5bn AUM, requires to report Form PF on a quarterly basis.		Jun-24
Large Private Equity Advisers (Form PF) with at least $2 billion in private equity AUM, requires enhanced reporting		Jun-24
Event Reporting (SEC Form PF Sectionss 5 & 6): Large Hedge Fund Advisers required to file within 72 hours from the occurrence of the relevant event and all Private Equity Fund Advisers must file on a quarterly basis within 60 days of the fiscal quarter end.	Dec-23
Proposed Rules
Reporting Amendments (Form PF Sections 1-4) additional Form PF amendments for reporting of investments and counterparty exposure.
ESG Disclosures: Expanded rules to promote consistent, comparable, and reliable information for investors.
Outsourcing Rules: Prohibit advisers from outsourcing certain services or functions without conducting due diligence and monitoring service providers.
Cybersecurity: Expanded rules that require the adoption of written policies and procedures, and the disclosure and recordkeeping of cyber incidents.
Safeguarding/Custody Rule: Expanded definition of custody of assets and requirements.
Definition of Dealers: Certain private funds advisers would be required to register with the SEC as dealers.
Predictive Analytics: Conflicts of Interest Associated With the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers.
Regulation S-P: Expand existing rule scope to define information covered by the regulation and requirements to implement written policies and procedures to specifically address data breach notifications, detection of unauthorized access to data, and proper disposal of information.

The graph above includes a selection of the SEC’s proposed and final stage rules and should not be considered to be an interpretation of the regulatory requirements, nor constitute legal advice.

What to Expect and How to Prepare for the SEC’s Proposed Rules in 2024

The timeline for compliance for the Private Fund Adviser regulation and other reporting rules will pass quickly. Compliance will require a collaborative approach from Chief Financial Officers (CFOs), Chief Compliance Officers (CCOs), and Chief Technology Officers (CTOs) to provide the expected level of transparency into the organization’s activities.

Firms should consider preparing for changes to their people, processes, and technology, including:

Evidence of Compliance - Document the annual compliance review of policies and procedures, specifically document the testing methodology and results.
Recordkeeping - Maintain a copy of everything required by the Private Fund Adviser rule, including but not limited to all investor notifications, consent and compliance reviews.
Expense Allocation - Inventory existing expenses and verify that amounts can be directly attributed to the specific activities. Define accounting/compliance controls, including expense validation criteria/escalation.
Impact of Reporting - Assess operations, third-party outsourced services and existing data to see what it will take to identify reportable events and promptly report required information.
Investor Agreements - Inventory all side-letters and working with legal counsel to define the updates.

Private Fund Advisors can expect more general SEC sweep examinations, stricter enforcement and increased fines for identified efficiencies. In addition to the new regulations, firms will want to consider the SEC's Regulatory Exam Priorities when evaluating the current compliance policies and procedures.

EisnerAmper professionals have the experience and knowledge to support you in assessing compliance risks this year and preparing for the new regulations.

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Louis Bruno

Louis Bruno in Regulatory and Compliance Services has over 15 years of experience in assisting hedge funds, broker-dealers, private wealth managers and multinational corporate banks with strategic and regulatory change management initiatives.

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