The recent US Fifth Circuit Court of Appeals decision on the Private Funds Advisers Rules opens up new opportunities for private funds advisers to expand their business. While you’ll still need to navigate SEC concepts like disclosing material terms and side letters, the process is much more manageable, giving greater creative freedom in addressing these issues.
What is the key takeaway from the US Fifth Circuit Court of Appeals decision on Private Funds Advisers Rules?
The key takeaway is that the investment management industry will remain more accessible to new investor capital and nuanced structures. This decision allows for greater flexibility and opportunities previously restricted under the original rules.
Why did the court highlight the difference between retail and private fund investors?
The court’s decision emphasized the distinction between retail and private fund investors because Congress enacted the Dodd-Frank Act after the 2008 financial crisis to help retail investors and prevent fraud from occurring at the retail investor level. Private fund investors do not need the same protections.There were specific exemptions from this provided under previous rules.
How does this impact the SEC’s ability to regulate the private funds industry?
The Private Funds Advisers Rule decision removes the SEC’s enforcement authority for the new private funds rules. The rules were found invalidated and are no longer effective.
In addition, other Supreme Court decisions severely limit the SEC’s ability to bring about actions related to the private funds industry. Those decisions include Loper, which overturned Chevron, and Jarkesy, which removed the SEC’s ability to hear private tribunals for fraud cases,
What should private fund managers focus on after the recent rulings?
In light of the recent rulings, private fund managers should focus more on the SEC’s investigative arm and its enforcement arm. Without the ability to enforce the private funds rules, without the ability to hear fraud cases in a private tribunal, and without the deference that the famous Chevron case used to give the SEC, the SEC will be much more limited in how it’s going to impact the private funds industry. Fund managers should consider market-driven approaches to generating more profit and sourcing the best investments for their investors.
The Nixon Peabody Private Equity & Investment Funds team closely monitors the SEC’s focus and enforcement priorities. We’re ready to guide clients on best practices and compliance. If you have any questions, don’t hesitate to contact your Nixon Peabody attorney.
