Regulatory Roundup

Kirkland’s Regulatory Roundup covers regulatory developments of the SEC during this pivotal moment in history. Bookmark this page and check back often for updates and accessible digests on the ever-evolving rules, important dates and our attorneys’ perspectives on this dynamic sector. Inquiries may be directed to regulatoryroundup@kirkland.com.

Kirkland’s Regulatory Solutions Practice Group, which includes several former senior SEC and government officials and some of the world’s most experienced practitioners in the United States and the EU, underlies every fund formation matter that Kirkland advises on, providing not only relevant insight on active regulatory issues, but proactively thinking ahead and “seeing around corners” for clients and helping them plan strategically for the future. The group leverages cross-practice knowledge from groups including Government, Regulatory & Internal Investigations, Government Enforcement Defense and Internal Investigations, Capital Markets, and Litigation.

SEC No-Action Letter Opens the Door Wider on Rule 506(c) Offerings

On March 12, 2025, the U.S. Securities and Exchange Commission provided interpretive guidance pursuant to a no-action letter clarifying that issuers relying on Rule 506(c) of Regulation D, the private offering safe harbor permitting general advertising and solicitation, can satisfy the Rule’s accredited investor verification requirements through investor self-certification when the investor is making an investment equal to or above a minimum amount.

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SEC Delays Implementation Date for Revised Form PF Allowing April 30th Filings to Use Current Form

The U.S. Securities and Exchange Commission extended the compliance date for the Form PF amendments that were adopted on February 8, 2024. The new compliance date is June 12, 2025. Therefore, annual filers will submit their 2024 annual amendment filings, due by April 30, 2025, on the current version of Form PF.

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Off-Channel Communications

On January 13, 2025, the U.S. Securities and Exchange Commission (the “SEC”) announced the latest settlements in its ongoing off-channel communications enforcement initiative, fining 12 SEC-registered broker-dealers and investment advisers, including several large private equity firms, for failing to maintain and preserve off-channel communications as required by federal securities laws.

Similar to prior settlements in this initiative, the SEC staff (the “Staff”) found, and each firm admitted to:

• persistent, widespread use of unapproved communications methods by employees, including supervisory personnel;
• failures to preserve communications that constituted required business records due to employees using unapproved communications methods on business and / or personal devices;
• inadequate compliance policies and procedures; and
• failures to reasonably supervise personnel with a view to preventing and detecting these types of violations.

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Private Fund Manager U.S. SEC / CFTC Compliance: 2025 Key Dates

As we begin the new year, private fund managers should plan for 2025’s filing and compliance deadlines. Key deadlines for firms with a December 31 fiscal year-end are summarized in this edition of Kirkland AIM.

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Private Fund Sponsor Pay-to-Play Restrictions for Upcoming U.S. Election Cycle

As the U.S. election cycle gets fully underway for Fall 2024, private fund sponsors should remain focused on Advisers Act and other restrictions on political contributions and political activities applicable to advisers and their employees and agents with respect to state or local elected officials and candidates.

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SEC Increases Burden of Private Fund Adviser Reporting on Form PF

The SEC adopted additional amendments to Form PF on February 8, 2024, which apply to SEC-registered private fund advisers. Upon their effectiveness, the primary changes to Form PF for private equity fund advisers include: 

• separate reporting for each private fund in “master-feeder fund arrangements” or “parallel fund structures,” and aggregated reporting for “parallel managed accounts” relating to each reporting fund; and
• expansions and/or modifications to information currently required to be reported about private fund advisers and funds, including with respect to fund profile/type, breakdown of fund asset values, fund inflows and outflows, fund base currency, fund creditors, fund beneficial owners, and performance (as further discussed below).

The amendments contain a large number of additional requirements applicable only to certain hedge fund advisers and hedge funds. 

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FinCEN Proposes to Increase AML Requirements for Investment Advisers

On February 13, the U.S. Treasury, Financial Crimes Enforcement Network proposed (the “Proposed Rule”) to apply affirmative anti-money laundering and countering-the-financing-of-terrorism program obligations as prescribed by the Bank Secrecy Act to investment advisers. These obligations historically have applied primarily to banks, broker-dealers and other similar financial institutions. The Proposed Rule is part of a broader overhaul to the U.S. anti-money laundering regime that includes the now-effective Corporate Transparency Act and upcoming rulemaking to enhance the Customer Due Diligence Rule.

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SEC Issues Marketing Rule FAQ: Subscription Lines and Net IRR Calculations

On February 6, the SEC Staff issued new “frequently asked question” guidance (“FAQ”) under the Advisers Act’s November 2022 Marketing Rule for SEC-registered advisers displaying performance of private funds that use subscription lines in their “advertisements” (e.g., pitch decks or PPMs). This FAQ addresses how gross and net IRRs should be presented under the Marketing Rule when subscription lines are used and continues a recent trend of deficiencies issued by SEC examination Staff in certain regional offices.  

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Private Fund Manager U.S. SEC/CFTC Compliance: 2024 Key Dates

As we begin the new year, private fund managers should plan for 2024’s filing and compliance deadlines. Key deadlines for firms with a December 31 fiscal year-end are summarized below.

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Kirkland & Ellis and Other Leading Law Firms Issue Detailed Guidance on the Corporate Transparency Act to the Private Funds Industry

On January 1, 2024, FinCEN will begin enforcing its final rule implementing certain beneficial ownership reporting provisions of the Corporate Transparency Act (CTA). The final rule is a sweeping overhaul to the U.S. anti-money laundering regime and will impose significant reporting obligations on a number of domestic limited liability companies, corporations, limited partnerships and other entities.

To address uncertainty over the application of certain CTA exemptions to private funds, Kirkland has joined with colleagues at several other leading law firms to align on the scope of certain exemptions and to prepare a guidance document for the private funds industry. 

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SEC Adopts Significant Rule Changes for Private Fund Advisers (Part 2 of 2)

As summarized in a previous Kirkland AIM, on August 23, 2023, the SEC voted 3-2 to adopt sweeping new rules under the Investment Advisers Act of 1940 that significantly increase the regulation of investment advisers, particularly private fund advisers (the “Adopted Rules”). The Adopted Rules represent the most extensive overhaul of the regulatory framework for private fund advisers since passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which required most private fund advisers to register with the SEC, and are expected to have an unprecedented impact on private fund adviser practices and to increase regulatory burdens for all covered advisers. The Adopted Rules are already subject to legal challenges from private funds industry groups, despite having been tempered in many respects from the Proposed Rules.

This Kirkland AIM provides a detailed review of the Adopted Rules.

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SEC Adopts Significant Rule Changes for Private Fund Advisers (Part 1 of 2)

On August 23, 2023, the SEC voted 3-2 to adopt comprehensive new requirements under the Investment Advisers Act of 1940 (the “Advisers Act”) for investment advisers, primarily private fund advisers (the “Adopted Rules”).

The Adopted Rules represent the most significant in a series of rulemakings applicable to private fund advisers by the SEC, and follow on the heels of compliance with the new Marketing Rule and recently adopted amendments to Form PF. While the Adopted Rules are expected to have a broad impact on private fund adviser practices and increase regulatory burdens, they have been tempered in many respects from the rules as proposed. Nevertheless, it is still possible that the Adopted Rules will be subject to future legal challenges.

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SEC Adopts Significant Amendments to Private Fund Adviser Reporting on Form PF

On May 3, 2023, the SEC voted to adopt significant amendments to Form PF on a 3-2 vote. Form PF requires SEC-registered investment advisers to file reports with the SEC regarding private funds managed by such advisers and allows the Financial Stability Oversight Council to assess systemic financial risk to the U.S. financial system. Currently, reports on Form PF for private equity fund advisers (usually including real estate and private credit within this category) are filed annually. Unlike many other SEC filings, Form PF filings are not public.

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SEC Proposes Enhancements to Regulation S-P and Takes Other Steps Related to Cybersecurity

The SEC recently proposed to enhance Regulation S-P’s provisions requiring investment advisers and investment companies to protect customer (e.g., fund limited partner and investment company shareholder) information, including a new requirement to notify individuals when their information was accessed or used without authorization.

Regulation S-P, adopted in 2000, broadly requires covered institutions like registered investment advisers, broker-dealers, investment companies and transfer agents to: (i) adopt written policies and procedures to safeguard customer records and information; (ii) properly dispose of customer information in a manner that protects against unauthorized access or use; and (iii) implement required privacy policy notice and opt-out provisions.

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SEC Division of Examinations Issues 2023 Exam Priorities

On February 7, 2023, the SEC’s Division of Examinations (“Exams”) published its Examination Priorities for 2023. For the second year running, investment advisers to private funds were highlighted as a significant focus area for Exams, demonstrating the current SEC leadership’s outsized focus on private fund advisers, which has also included numerous policy initiatives with several far-reaching rulemaking proposals1 and significant attention by the Division of Enforcement.

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SEC Releases Marketing Rule FAQ on Private Fund Net Performance

More than two months after the effective date of the SEC’s amended Marketing Rule, the Staff of the Division of Investment Management released on January 11, 2023, a Frequently Asked Question regarding the presentation of gross and net performance in advertisements governed by the Marketing Rule.

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SEC Continues Enforcement Scrutiny of ESG Claims by Investment Advisers

In November 2022, the SEC announced a settlement with Goldman Sachs Asset Management, L.P. (GSAM), including a penalty in the amount of $4 million, in which the SEC alleged that GSAM initially failed to adopt procedures to ensure compliance with certain ESG claims made to GSAM clients/investors and then, once adopted, failed to follow such procedures. Like the BNY Mellon ESG order, which was settled last May for $1.5 million, the SEC focus was on statements made by the adviser regarding how it integrated ESG into its investment decision-making process. Notwithstanding the larger penalty in this GSAM order, the order only alleged an Advisers Act compliance rule violation while the BNY Mellon order included a compliance rule violation as well as additional allegations involving fraud/misstatements under the Advisers Act and the Investment Company Act. This order, the BNY order and the SEC proposed Advisers Act ESG rulemaking demonstrate the SEC’s focus on ESG claims by registered investments advisers.

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SEC Proposes New Rules on Adviser Oversight of Service Providers

On October 26, 2022, the SEC proposed, by a vote of 3-2, a new rule (“Proposed Rule”) that, if adopted, would require SEC-registered advisers, including private fund advisers, to undertake due diligence assessments before engaging service providers, including affiliated service providers, for certain “core” advisory-related services or functions and to periodically monitor the service provider’s performance and reassess the appropriateness of the outsourcing arrangement. This proposal continues the extensive 2022 rulemaking agenda for private fund and other advisers.

The proposals also contain related books and records requirements, including a new provision specifically addressing the retention of outsourced recordkeepers. In addition, SEC-registered advisers would be required to disclose certain census-like information about the Covered Functions and outsourced service providers on Form ADV.

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Alert: SEC Proposes Pair of Long-Awaited ESG Rules; Non-ESG Funds Swept Up as Well

On May 25, 2022, in a long-awaited move, the U.S. Securities and Exchange Commission ("SEC") issued a pair of rule proposals related to the use of environmental, social and governance ("ESG") investment practices by open-end and closed-end registered investment companies, as well as by business development companies ("BDCs," and collectively, "funds"). The SEC's stated goals with these proposals are to increase transparency and confidence in funds that consider ESG factors as part of their investment process, given the recent and ongoing dramatic growth in investor interest in ESG investing. The SEC believes that investors looking to participate in ESG investing currently face a lack of consistent, comparable and reliable information among funds that claim to consider one or more ESG factors.

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SEC Proposes Enhanced Disclosure by Certain Advisers on ESG Investment Practices

The SEC proposed on May 25, 2022, by a vote of 3-1, rule changes that if adopted would require SEC-registered advisers to include new narrative disclosures in an adviser’s Form ADV Part 2A brochure regarding Environmental, Social and Governance (“ESG”) factors the adviser considers in implementing its investment strategies. Registered advisers and exempt reporting advisers (“ERAs”) also would be required to report census-like information in Form ADV Part 1A concerning an adviser’s ESG strategies, including separate ESG-related reporting for each private fund the adviser is required to identify in Part 1A.

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The SEC Proposes New Rules Regarding SPACs 

On March 30, 2022, noting that over the past two years there has been an unprecedented surge in the number of initial public offerings by SPACs, the U.S. Securities and Exchange Commission (SEC) proposed a sweeping new set of rules regarding SPAC IPOs and mergers in a 3-to-1 vote of the SEC Commissioners.

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SEC Proposes Significant New Cybersecurity Rules for Investment Advisers

On February 9, 2022, the U.S. Securities and Exchange Commission (“SEC”) voted (3-1) to propose new cybersecurity requirements for SEC-registered investment advisers under the Investment Advisers Act of 1940 (the “Advisers Act”) and SEC-registered investment companies under the Investment Company Act of 1940 (the "Investment Company Act"). The proposed rules follow several cybersecurity alerts, reports and enforcement actions from the SEC over the last several years. While most SEC-registered investment advisers already have adopted and implemented cybersecurity policies and procedures, the proposed rules contain more prescriptive requirements compared to existing SEC cybersecurity guidance and rules related to safeguarding information such as Regulation S-P, and would require most registered advisers to implement enhancements to their cybersecurity programs. The proposed rules would also impose reporting and disclosure obligations relating to cybersecurity incidents and risks. Therefore, advisers will likely need to commit additional resources to cybersecurity and be prepared for greater scrutiny of their cybersecurity practices by the SEC and investors.

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SEC Proposes Sweeping Rule Changes for Private Fund Advisers (Part 2 of 2) 

As summarized in a previous Kirkland AIM, on February 9, 2022, the SEC voted 3-1 to propose significant new rules under the Investment Advisers Act of 1940 (the “Advisers Act”) to increase the regulation of investment advisers, including private fund advisers (the “Proposed Rules”).

The Proposed Rules represent the most extensive rulemaking applicable to private fund advisers by the SEC under Chairman Gensler, as well as the SEC’s most emboldened use to date of authorizing provisions under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the original rulemaking requiring most large private fund advisers to register under the Advisers Act during the 2011-2012 period. If adopted in their current form, the Proposed Rules would represent a departure from statements in recent years by the SEC and its Staff emphasizing disclosure of adviser practices, and result in a rare imposition of substantive requirements and prohibitions on private fund advisory contracts (e.g., limited partnership agreements and investment management agreements), particularly without express statutory authority regarding those requirements or prohibitions.

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SEC Proposes Sweeping Rule Changes for Private Fund Advisers (Part 1 of 2) 

On February 9, 2022, the SEC voted (3-1) to propose significant new rules under the Investment Advisers Act of 1940 (the “Advisers Act”) to increase the regulation of investment advisers, including private fund advisers (the “Proposed Rules”). The Proposed Rules, which were issued in two separate releases, address:

• SEC-registered and unregistered private fund advisers (the “Private Fund Adviser Proposal”); and
• Cybersecurity risk management for SEC-registered advisers (the “Cybersecurity Proposal”).

The Proposed Rules represent the most significant proposed rulemaking applicable to private fund advisers by the SEC under Chairman Gensler, and follow on the heels of a risk alert regarding private fund adviser deficiencies and proposed amendments to Form PF.

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SEC Risk Alert Details Additional Private Fund Adviser Examination Deficiencies 

On January 27, 2022, the U.S. Securities and Exchange Commission’s (the “SEC”) Division of Examinations (“Exams”) issued a risk alert (the “2022 Risk Alert”) identifying compliance issues observed by Exams staff (the “Staff”) in examinations of registered investment advisers that advise private funds.

The 2022 Risk Alert indicates that it builds on an earlier risk alert (“2020 Risk Alert”) issued by Exams that addressed deficiencies commonly identified by the Staff in examinations of private fund advisers, and was issued due to the “significant role of private fund advisers in the financial markets” and the “substantial growth in reported private fund assets.” As summarized here, the 2020 Risk Alert cited deficiencies that fell into the following general categories:

• Conflicts of interest;
• Fees and expenses; and
• Policies and procedures relating to material nonpublic information.

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SEC Proposes Significant Amendments to Private Fund Manager Reporting on Form PF 

On January 26, 2022, the SEC voted to propose significant amendments to Form PF. Form PF, which was adopted in 2011 in connection with the Dodd-Frank Act, requires large registered investment advisers to file reports with the SEC regarding private funds managed by such advisers and to allow the Financial Stability Oversight Council to assess systemic financial risk to the U.S. financial system. Currently, reports on Form PF for large private equity fund managers (usually including real estate and private credit within this category) are filed annually and for hedge funds quarterly. Unlike many other SEC filings, Form PF filings are not public.

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