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Private Funds Rule: SEC Adopts Disclosure Changes

Regulatory Reporting
illustration SEC private funds rule
2 min read
Arthy Kumar
Industry Principal
Published: May 18, 2022
Last Updated: October 10, 2023

The U.S. Securities and Exchange Commission (SEC) has been busy this year, and now private funds are under further oversight. The agency recently approved the private funds rule, the most extensive amendments to the Investment Advisers Act of 1940, which affect all private equity and hedge fund advisers, even those exempted from SEC registration. Here’s a synopsis of the changes.

Private funds rule reforms at a glance

Quarterly statements: Private fund advisers need to prepare and distribute quarterly statements to investors within 45 days after each calendar quarter end. They need to include certain information regarding fund performance, fees, expenses, and manager compensation.

Annual independent audits: Private fund advisers have to obtain and distribute an annual independent audit of the financial statements of the funds they manage to investors.

Prohibited activities: This rule applies to all private fund advisers, including those not registered with the SEC. Fund registrants are restricted from engaging in certain activities that the SEC believes are contrary to the public interest and the protection of investors, such as certain sales practices, conflicts of interest, and compensation schemes. 

Adviser-led secondaries: Advisers must give investors the choice to either sell their shares in a private fund or transfer their investments to another one managed by the same adviser or his or her affiliates. Advisers also need to obtain an independent judgement about the fairness or value of the options offered and share information about any significant business connections between the adviser and the opinion provider with the private fund's investors. 

Books and records rule amendments: To help the agency evaluate an adviser’s compliance conduct, changes were made to the books and records rule under the Advisers Act. 

Next steps

Following new regulations, investment companies may need to stress test their current systems and data management practices to ensure compliance and satisfy investor demands. Fund managers should evaluate if their financial reporting workflows follow these best practices: 

  • Centralized data repository that enables process efficiencies and real-time team collaboration across geographies and time zones 
  • Live-linking technology that minimizes errors by instantly updating figures across financial statements, investor reports, fund documents, presentations, disclosures, and more without manual intervention  
  • Granular permissions with working documents that offer enhanced transparency and security to give process leaders more control 
  • Standardized and consistent workstreams across all funds that facilitate scalability 

Discover how investment companies of many sizes and global asset managers are transforming their fund reporting


About the Author
Arthy Kumar
Arthy Kumar

Industry Principal

Arthy Kumar is an Industry Principal at Workiva. She drives the go-to-market strategy, execution, and success of reporting and compliance solutions for banking, investment, and insurance companies. Arthy’s previous roles at Workiva include Director of Program Management for Investments and Subject Matter Expert. Before joining Workiva in 2012, Arthy spent 14 years at Vanguard and MetLife. Her experience includes financial planning, portfolio analysis, relationship management of large institutional clients, and people management. She is a CFP® (Certified Financial PlannerTM) professional and a Chartered Financial Consultant (ChFC).

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