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Unpacking the SEC’s Proposed Rules for Private Funds: How to Prepare

Regulatory Reporting
New SEC proposed rules for private funds
6 min read
Arthy Kumar
Industry Principal
Published: 18 May 2022
Last Updated: 9 May 2023

The U.S. Securities and Exchange Commission sure has been busy this year, and private funds are not exempt from their activity. Recently, the SEC proposed new rules and amendments under the Investment Advisers Act of 1940 that would impact all private equity and hedge fund advisers, even advisers exempted from registration with the SEC.

The proposed rules are notably the most extensive rulemaking applicable to private fund advisers by the SEC under Chair Gary Gensler. For a quick refresher, here are some key takeaways from the proposed rule for private funds:

  • Quarterly statements: Private fund advisers would be required to prepare and distribute quarterly statements to investors within 45 days after each calendar quarter end. Statements would need to include certain information regarding fund performance, fees, expenses, and manager compensation.
  • Annual, independent audits: Private fund advisers would have to obtain and distribute an annual, independent audit of the financial statements of the funds they manage to investors.
  • Prohibited activities: Private fund advisers, including those not registered with the SEC, would be prohibited from several activities, including certain sales practices, conflicts of interest, and compensation schemes that the SEC believes are contrary to the public interest and the protection of investors.

While the public comment period for the proposed rules was extended, there’s no sign that the momentum is slowing down. That means the time is now (yes, now!) to prepare for future regulations.

Get ready by future-proofing your reporting: Four ways to prepare

While you might already be reporting more frequently and sharing more detailed information because of investor demands or your own transparency goals, preparing for the scrutiny of a regulatory agency presents a whole new set of challenges.

Keeping up with the timelines and guidelines around quarterly statements and an independent audit could feel overwhelming if and when these new rules come into play. And that’s why it’s important to prepare now. Technology can play a pivotal role in being prepared for the evolving and constantly changing regulatory landscape. Asset management firms should consider implementing forward-looking and effective solutions now to stay ahead of the curve.

Instead of scrambling, you’ll feel more in control when you have the proper teams, processes, and technology in place. In fact, there’s never been a better time to evaluate how to bring everything—your data, your processes, and your teams—into a single location so you can work in real time without missing a beat.

As you consider how to build scalable, efficient reporting processes to get ahead, here are four ways you can start preparing now:

1. Centralize your working location

By gathering everything you need into one central location, less time is spent chasing down data and documents. When everyone, including external auditors, can access what they need at any time and work simultaneously, you'll start to see increased efficiency across your processes. This is why so many organizations are turning to cloud platforms for reporting processes. Cloud platforms provide a single, secure, and accessible working location for all collaborators.

2. Streamline collaboration across teams and geographies

Finding a way to centralize work with real-time collaboration can also help eliminate bottlenecks like back-and-forth editing since more than one person can work on the same document at the same time, regardless of where they’re located. That means edits, questions, comments, responses, and approvals are all housed in one spot. You can also say goodbye to that recurring version control nightmare, because everyone will always be working on the most up-to-date version!

What about being able to track changes while everyone is working together in real time? Look for a tool that tracks each individual’s history, showing who made what change and when. That way your teams can easily see where edits were made without needing to spend hours re-reviewing the latest documents.

Making sure the right people—both internal and external parties—have secure access is also critical for smooth, streamlined collaboration. With the possibility of future independent audits, you’ll be ready with a seamless way to share data and documents with external auditors.

And if you’re worried about sharing your documents with too many people, look for a tool that offers granular permissioning based on role to help mitigate risk. This is especially important to consider as you think about creating consistent, accurate quarterly reports.

3. Automate what slows you down

If there’s something currently slowing you down in your reporting and auditing processes, then it’s likely going to slow you down even more when regulations hit. Automation is becoming the sidekick every team needs to help ease the burden of manual, tedious reporting tasks. 

How can you save time with automation? By dynamically linking data and language across your documents, charts, and graphs, you won’t have to update each instance manually—the updates will occur automatically. For example, let’s say you have an update to a number that is in several funds and reports. Imagine not needing to lay a finger on your reports or presentations when there’s a revision because the numbers update automatically across every single instance. Pretty neat, right?

Think about how empowered you’ll feel tackling any potential regulations with this type of automation. Think about the consistency across your fund financial statements and reports! It’s all possible with the right technology. In fact, with a cloud solution built for fund financial reporting, you can automate many parts of the reporting process that will help increase efficiency—and help you to stay ahead of future regulations.

4. Increase data accuracy 

There’s no question that data accuracy in your fund financial statements and fund valuations matters. And it soon could be put to the ultimate test. You might already feel like you’re racing against the clock to produce timely statements and valuations, so how can you speed this up without sacrificing accuracy? 

By connecting fund data directly from portfolio companies, fund accounting systems, and fund administrators to fund financial statements, fund valuations, investor reports, and other internal and external reports, you can increase accuracy by automatically updating numbers as they change. 

That means you won’t have to worry about copy and paste errors. You won’t have to question if it’s the most up-to-date data. Wouldn’t it be nice to be that confident in the data you deliver to your investors? A fund reporting platform that connects data across hundreds of funds can help your team accomplish this by providing a single source of truth across all of your fund data.

The biggest takeaway: Be ready, and be flexible

With the scale of the proposed SEC rules, being flexible is key. If you don’t already have reporting processes and software to help you adapt, now is the time to evaluate how a cloud-based, end-to-end fund reporting platform can make it happen. By enhancing efficiency across your reporting processes, your team will be ready if and when new SEC proposed rules and amendments go into effect.

If you’re looking for technology to get ready, the Workiva platform was built for this sort of thing: speed, accuracy, and flexibility to improve, future-proof, and automate your reporting processes. 

Take it from one of our customers, an alternative asset management firm that expanded its use of the Workiva platform for private funds. The firm’s private funds group produces several investor-facing deliverables, including fund financial statements, quarterly webcast presentations, co-investor reports, and more. Each quarter, the team was responsible for preparing more than 40 sets of financial statements and quarterly reports.

Shelley, the vice president of finance for the alternative asset manager, knew the Workiva platform could help save time and increase accuracy. “The automation saves me from spending hours and hours on simple tasks,” Shelley said. “I can do everything much faster.”

Ready to see how the Workiva platform can help you create efficient reporting processes so you’re prepared? Request a demo today.

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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